AS Micro Rent Controls in Housing

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AS Micro Rent Controls in Housing

  1. 1. Rent Controls AS Micro: GovernmentIntervention in Markets
  2. 2. Economics of Rent Controls
  3. 3. Housing shortages – a structural economic problem
  4. 4. Renting has become more expensiveRegion Average Rent (Sept 2012, £s per week)London £1,092South West £638Yorkshire £542North West £594Wales £556South East £776England and Wales £741
  5. 5. Maximum rents – rising demand Rent per Rental Market with a Maximum Rent With the help of an appropriatemonth (£) diagram show how the introduction Supply 1 of a maximum rent might affect the market for rental properties P1 1. Define a maximum rent 2. Explain where a maximum price must be to change the free-market equilibrium price 3. Use a clear supply and Demand 1 demand diagram to help 4. Include some evaluation O Q1 Quantity of rented property
  6. 6. Maximum rents – rising demand Rent per Rental Market with a Maximum Rentmonth (£) With the help of an appropriate diagram show how the Supply 1 introduction of a maximum rent might affect the market for rental properties P1 1. Max rent is a price ceiling ceiling 2. Must be set below normal P2 free market equilibrium Demand 1 3. In diagram – set at rent P2 O Q1 Quantity of rented property
  7. 7. Maximum rents – rising demand Rent per Rental Market with a Maximum Rent With the help of an appropriatemonth (£) diagram show how the introduction Supply 1 of a maximum rent might affect the market for rental properties P1 1. Max rent is a price ceiling 2. Must be set below normal ceiling free market equilibrium P2 3. In diagram – set at rent P2 4. P2 (ceteris paribus) creates an Demand 1 excess demand or shortage = Q3-Q2 O Q3 Q1 Q2 Quantity of rented property
  8. 8. Maximum rents – rising demand Rent per Rental Market with a Maximum Rent With the help of an appropriatemonth (£) diagram show how the introduction of a maximum rent might affect Supply 1 P3 the market for rental properties 1. Max rent is a price ceiling P1 2. Must be set below normal free market equilibrium ceiling 3. In diagram – set at rent P2 P2 4. P2 (ceteris paribus) creates an Demand 1 excess demand or shortage = Q3-Q2 5. Shortage may lead to a shadow market developing – O Q3 Q1 Q2 some people willing to pay P3 Quantity of rented property
  9. 9. Maximum rents – rising demand Rent per Rental Market with a Maximum Rent With the help of an appropriatemonth (£) diagram show how the introduction of a maximum rent might affect Supply 1 P3 the market for rental properties P1 Evaluating possible effects on market for rental properties ceiling 1. Extent of contraction in rental P2 housing supply is uncertain Demand 1 2. Will there be a long run decline in supply? 3. Possible reduction in quality of rental housing available Q3 Q1 Q2 4. How will max rent respond to Quantity of rented property shifts in demand?
  10. 10. Evaluate the case for and the case against theintroduction of maximum rents in the market for rented properties in the UK
  11. 11. Evaluate the case for and the case against theintroduction of maximum rents in the market for rented properties in the UK Bigger picture – long term shortage of available rented property Efficiency – does a price ceiling improve the market outcome? Equality – is a max rent equitable - helping those in most need? Scope – how low would the ceiling be? National? Regional? Time – long term effects of holding down market rents Effectiveness – unintended consequences? Better alternatives? Prioritise arguments – what is your main argument and why? Scale – Significance – wider importance of the rented sector
  12. 12. Improving rented housing supply
  13. 13. Improving rented housing supply Relaxation of planning Incentives controls for building innovation Taxincentives Release of Build more for “build surplus social to rent” land housing

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