Rent Control Essay

There are adverse reasons to believe that housing markets are less than perfectly competitive. That is the concentration of rental property is in the hands of few individuals or owners and there are collusive opportunities arising from the presence of the landlords. As evidenced by statistics, by Cronin 1983, in his study of Washington DC, in the suburbs of Virginia, an average of 70% of all units in each submarket are controlled by one owner and the average number of rental housing firms in each of the said markets is slightly above four. Moreover, in Thousand oaks, California, one owner controlled over 30% of the rentals.
In addition, imperfect competition is evidenced by the response of landlords to housing shortages, which is not done through hiking of initial rents and supply of apartments. This is proved by the fact that, landlords never responded as expected to the 1998 Ontario relaxed rental control laws as passed in Toronto. These are laws gave the landlords the right to raise the rents above the market rate whenever a tenant moved.
However, the landlords did not respond by increasing construction of apartments since there were only 600 units built during the period of two years, yet the population of Toronto increased by more than 100000. Due to this imperfection, one would agree that price control is necessary.
Rent control or a standard rent control places a ceiling or a limit on the rent that a landlord would charge for a certain apartment. It is therefore observed that the effect of such action is excess demand for housing (Kaushik, and Patrick 103). Tenancy rent control is a common type of rent control and allows landlords to set the rent freely when they lease to a new tenant subject to the tenants right not to approve but prevent the landlords from raising the rent.
However, choosing the method of implementing a rent control is the problem. This is because; there are two forms or types of rent control, that is; the transfer model and the regulated tenure. Under the transfer model, which was mostly used during wars, the rent can be legally adjusted for a dwelling or an apartment at a point where it is below the market rate. In addition, tenants cannot be evicted at will by the landlord except under a certain set conditions. However, the landlords may be given the right to notice for eviction if the original contract had no such provision. Lastly, the regulation coverage is only partial, in the sense that, it only covers the existing stock and not new stocks.
On the other hand, regulated tenure focuses on the lease rather than the dwelling. It provides the tenants with a considerable security of tenure. Increasing the rent during the term is regulated though there are restrictions as to the initial rent. Thus, regulation in this form is intended to be long term and almost comprehensive in its network
However, most research in the field of the social costs associated with rent control focuses on the reduced supply. This, therefore, assumes that in the presence of shortages, goods will be allocated efficiently which may not always be the case. That is to say that the market mechanism allocates goods to consumers who are willing to pay the most for those goods and that the allocation is Pareto efficient (Franz 37).
On the contrast, this allocation is not automatic when demand exceeds supply. In the presence of shortages, some system for rationing goods such as queues and lotteries substitutes the price system. These options to the price system do not achieve the efficiency of the market system and they, therefore, ensure inefficiency. That is rationing under rent control ensures that apartments go to consumers who do not, necessarily, value them most.
Since the two types of rent control are driven by two different motives, they also give different effects and challenges to economic analysis. For instance, under the forced transfer model, the impact on supply is clear. This is because the rent ceiling does not apply to new constructions leading to a challenge on how the partial price control impacts on the unregulated sector.
On the other hand, monopolistic behavior does not warrant commonly observed forms of rent control. This is because; the transfer model excludes new construction while the regulated tenure put little restriction on the initial rent of new leases. The two forms are, therefore, unable to achieve a permanent transfer. This permanent transfer is necessary in order to decrease the long run supply and equilibrium vacancy rates.
When monopolistic behaviors are not regulated, they tend to exploit the consumers by increasing the producer surplus and decreasing the consumer surplus. This is by increasing the prices of goods at will and charging consumers high rates so that they may earn high margins of profits. So, which is important, to seek to control long term supply and equilibrium vacancy rates or to protect consumers from monopolistic exploitation in the short term?

Works Cited

Kaushik Basu and Patrick Emerson. Efficiency pricing, Tenancy Rent Control and Monopolistic Landlords. Cornell University. 2003. Print.
Franz Hubert.academic Analysis and Public Sentiment. Humboldt University. 2003. Print.