Rent controls aim to make housing more affordable but can distort housing markets and reduce rental supply. The document discusses how rent ceilings set below market equilibrium can cause excess demand and potential shortages. It evaluates arguments for and against maximum rent policies, noting the need to consider long term effects on supply and potential unintended consequences. Alternatives to address housing shortages like relaxing planning rules and incentives for building could improve rental markets while avoiding market distortions from price ceilings.

1. Rent Controls
AS Micro:
Government
Intervention in
Markets

2. Economics of Rent Controls

3. Housing shortages – a structural economic problem

4. Renting has become more expensive
Region Average Rent (Sept
2012, £s per week)
London £1,092
South West £638
Yorkshire £542
North West £594
Wales £556
South East £776
England and Wales £741

5. Maximum rents – rising demand
Rent per Rental Market with a Maximum Rent
With the help of an appropriate
month (£)
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. Maximum rents – rising demand
Rent per Rental Market with a Maximum Rent
month (£)
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. Maximum rents – rising demand
Rent per Rental Market with a Maximum Rent
With the help of an appropriate
month (£)
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. Maximum rents – rising demand
Rent per Rental Market with a Maximum Rent With the help of an appropriate
month (£) 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. Maximum rents – rising demand
Rent per Rental Market with a Maximum Rent With the help of an appropriate
month (£) 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. Evaluate the case for and the case against the
introduction of maximum rents in the market for
rented properties in the UK

11. Evaluate the case for and the case against the
introduction 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. Improving rented housing supply

13. Improving rented housing supply
Relaxation
of planning Incentives
controls for building
innovation
Tax
incentives Release of Build more
for “build surplus social
to rent” land housing