Which of the following is generally true of rent control policies?

• A. Rent control causes the equilibrium price to rise above the controlled price.
• B. Rent control often leads to shortages of rental housing.
• C. Rent control typically increases the quality of rental housing.
• D. Rent control eliminates the need for black markets in housing.

Answer: (B)

Verified step by step guidance

1. Understand the concept of rent control: Rent control is a government policy that sets a maximum price (rent ceiling) landlords can charge for rental housing, usually below the market equilibrium price.
2. Analyze the effect of setting a price ceiling below the equilibrium price: When the controlled rent is lower than the market equilibrium rent, the quantity of rental housing demanded increases because lower prices attract more renters.
3. Consider the supply side response: At the lower controlled rent, landlords may supply less rental housing because the incentive to rent out or maintain properties decreases, leading to a reduction in quantity supplied.
4. Recognize the resulting market imbalance: The increase in quantity demanded combined with the decrease in quantity supplied creates a shortage of rental housing, meaning there are more renters looking for housing than available units.
5. Evaluate other potential effects: Rent control does not typically increase the quality of housing; in fact, it may reduce maintenance incentives. It also does not eliminate black markets; sometimes, illegal side payments or under-the-table rents emerge to circumvent the controls.