Housing rent controls

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The cost of renting property in many parts of the UK continues to rise - would rent controls make any difference? A Unit 1 economics revision presentation.

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Housing rent controls

  1. 1. AS Micro – Autumn 2013 Housing Rent Controls
  2. 2. The Rising Cost of Renting
  3. 3. 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
  4. 4. Maximum rents – rising demand Rent per month (£) Rental Market with a Maximum Rent Supply 1 P1 Demand 1 O Q1 Quantity of rented property With the help of an appropriate diagram show how the introduction of a maximum rent might affect the market for rental properties 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 diagram to help 4. Include some evaluation
  5. 5. Maximum rents – rising demand Rent per month (£) Rental Market with a Maximum Rent Supply 1 P1 ceiling P2 Demand 1 O Q1 Quantity of rented property With the help of an appropriate diagram show how the introduction of a maximum rent might affect the market for rental properties 1. Max rent is a price ceiling 2. Must be set below normal free market equilibrium 3. In diagram – set at rent P2
  6. 6. Maximum rents – rising demand Rent per month (£) Rental Market with a Maximum Rent Supply 1 P1 ceiling P2 Demand 1 O Q3 Q1 Q2 Quantity of rented property With the help of an appropriate diagram show how the introduction of a maximum rent might affect the market for rental properties 1. Max rent is a price ceiling 2. Must be set below normal free market equilibrium 3. In diagram – set at rent P2 4. P2 (ceteris paribus) creates an excess demand or shortage = Q3-Q2
  7. 7. Maximum rents – rising demand Rent per month (£) Rental Market with a Maximum Rent Supply 1 P3 P1 ceiling P2 Demand 1 O Q3 Q1 Q2 Quantity of rented property With the help of an appropriate diagram show how the introduction of a maximum rent might affect the market for rental properties 1. Max rent is a price ceiling 2. Must be set below normal free market equilibrium 3. In diagram – set at rent P2 4. P2 (ceteris paribus) creates an excess demand or shortage = Q3-Q2 5. Shortage may lead to a shadow market developing – some people willing to pay P3
  8. 8. Application Analysis Evaluation Good application opens the door to good analysis and good evaluation
  9. 9. Examiners like answers that make connections
  10. 10. Examiners reward answers that provide chains of reasoning
  11. 11. These are good connective phrases by contrast… therefore… this might mean… A consequence of this might be … this is because on the other hand…
  12. 12. Building the Case for Rent Controls On grounds of equity • High rents hit low income families • Affordable renting will reduce poverty On grounds of efficiency • Affordable rents improves labour mobility • Encourages smaller homes to be built Targets monopolistic landlords • Exploiting the consumer / low price elasticity • Will free up properties for the government to buy
  13. 13. Building the Case for Rent Controls On grounds of equity • High rents hit low income families • Affordable renting will reduce poverty On grounds of efficiency • Affordable rents improves labour mobility • Encourages smaller homes to be built Targets monopolistic landlords • Exploiting the consumer / low price elasticity • Will free up properties for the government to buy
  14. 14. Building the Case for Rent Controls On grounds of equity • High rents hit low income families • Affordable renting will reduce poverty On grounds of efficiency • Affordable rents improves labour mobility • Encourages smaller homes to be built Targets monopolistic landlords • Exploiting the consumer / low price elasticity • Will free up properties for the government to buy
  15. 15. Please use BIG DIAGRAMS – large, clear diagrams are easier to mark and credit!
  16. 16. Counter-Arguments Rent caps causes supply contraction • Less incentive to build or convert homes • Lower spend on property maintenance Creates incentive for black market • Landlords may find other ways to get money • May worsen tenancy security Rent cap doesn’t tackle bigger issue • Need to build more homes • Other policies might be more effective
  17. 17. Counter-Arguments Rent caps causes supply contraction • Less incentive to build or convert homes • Lower spend on property maintenance Creates incentive for black market • Landlords may find other ways to get money • May worsen tenancy security Rent cap doesn’t tackle bigger issue • Need to build more homes • Other policies might be more effective
  18. 18. Some Counter-Arguments Rent caps causes supply contraction • Less incentive to build or convert homes • Lower spend on property maintenance Creates incentive for black market • Landlords may find other ways to get money • May worsen tenancy security Rent cap doesn’t tackle bigger issue • Need to build more homes • Other policies might be more effective
  19. 19. Wider Points / Issues Landlords Tenants Will rent caps change behaviour? Which tenants will be affected? What choices do they have? What rented housing will be available ?
  20. 20. Maximum rents – rising demand Rent per month (£) Rental Market with a Maximum Rent Supply 1 P3 Evaluating possible effects on market for rental properties P1 ceiling P2 O With the help of an appropriate diagram show how the introduction of a maximum rent might affect the market for rental properties Q3 1. Extent of contraction in rental 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 Q1 Q2 4. How will max rent respond to shifts in demand? Quantity of rented property
  21. 21. Maximum rents – rising demand Rent per month (£) Rental Market with a Maximum Rent Supply 1 P3 P1 ceiling P2 Demand 1 O Q1 Q2 Quantity of rented property
  22. 22. Evaluate the case for and the case against the introduction of maximum rents in the market for rented properties in the UK
  23. 23. 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
  24. 24. Improving rented housing supply
  25. 25. Improving rented housing supply Relaxation of planning controls Tax incentives for “build to rent” Release of surplus land Incentives for building innovation Build more social housing
  26. 26. Tutor2u Keep up-to-date with economics, resources, quizzes and worksheets for your economics course.
  27. 27. Get help for unit 1 from fellow students, teachers and tutor2u on Twitter: #econ1 @tutor2u_econ 26/11/2013 09:32:39

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