Which of the following statements is true concerning the consequences of rent controls?

• A. Rent controls eliminate the possibility of black markets in the rental housing sector.
• B. Rent controls typically result in an increase in the quality of rental housing as landlords compete for tenants.
• C. Rent controls often lead to shortages of rental housing because the quantity demanded exceeds the quantity supplied at the controlled price.
• D. Rent controls ensure that all renters pay below-market prices without any unintended side effects.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand what rent controls are — they are government-imposed limits on the price landlords can charge for rental housing, usually set below the market equilibrium price.
2. Step 2: Analyze the effect of setting a price ceiling below the market equilibrium price, which typically causes the quantity demanded of rental housing to increase while the quantity supplied decreases.
3. Step 3: Recognize that this imbalance between higher demand and lower supply creates a shortage in the rental housing market.
4. Step 4: Consider the unintended consequences of rent controls, such as reduced incentives for landlords to maintain or improve properties, which can lead to a decline in housing quality rather than an increase.
5. Step 5: Understand that rent controls can also encourage black markets where tenants and landlords negotiate prices above the legal limit, contradicting the statement that rent controls eliminate black markets.