Which of the following statements best describes the results of the imposition of rent controls?

• A. Rent controls have no effect on the allocation of rental housing or market outcomes.
• B. Rent controls usually result in higher equilibrium rental prices.
• C. Rent controls typically increase the quality and quantity of available rental housing.
• D. Rent controls often lead to shortages of rental housing and the emergence of black markets.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand what rent controls are — they are government-imposed limits on the amount landlords can charge for renting out housing, typically set below the market equilibrium price.
2. Step 2: Recall the basic supply and demand framework for rental housing, where the equilibrium price is determined by the intersection of the supply curve (landlords) and demand curve (tenants).
3. Step 3: Analyze the effect of setting a rent control price below the equilibrium rent: this creates a price ceiling, which leads to a quantity demanded that exceeds the quantity supplied, causing a shortage.
4. Step 4: Recognize that shortages mean fewer rental units are available than tenants want at the controlled price, which can reduce the quality and maintenance of rental housing since landlords have less incentive to invest.
5. Step 5: Understand that shortages and unmet demand often lead to non-price rationing mechanisms such as long waiting lists or black markets where units are rented at higher prices unofficially.