SOLUTION: UNH The Case Against Price Controls During the Pandemic Essay

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-ureJ aJe^/r sloJluof, lueu ‘JE1!A Jo Pu3 aqr JeryE ,(lrroqs peddorp ueql PUP
I r”l( plrol6. Sulrnp pelnpoJlul ara^ slorluo3 lual selets Patlun eql uI
‘qf,ns sB slelJeru Sutsnoq
ur tsaJelur relnrnred B seq euo lou Jo JaqFq^ ;o ssalpreSer ‘luraua8 ut
suoEua^fslur la)reur rnogB Ja{ulqr elrqns sJolu 8 auo el?Iu Plnoqs sloJluof,
tueJ to srf,aJJa drepuoras dueru aqt Jo auos q8norqt 3ul>1utq1 ‘suonual
-Jatur toireru pu€ sloJluoJ acrrd ;o snelqns praua8 aJolu aqt uo peqs daqr
rq31 aqr Jo asnef,aq dpreurtrd looq slqr roJ lsarelul Jo ere slorluoJ lueU
slojluoc ]uou
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Because
iandic.:;. :
:.::’. -::- .:.:.i::::.. ::- ): :-a-: -a’a.iilrl ordln-1:::’
:::- i.-.LJr;ti:>:i i:a FeinisstbLe rent. C– -‘
>::
have some mechanisir-,:
monly, this is an annua,. :.:.ss-i:.-:ca:d :.Jjustment. Some ordinar;:,
also provide for an indrvrduai :ppe,rls pro.ess in n’hich a Iandlord nt=
appeal for an increase above the acfoss-ihe-board increase on the basls :
his or her particular situation. Both proponentc and opponents of contr, .’
would probably agree that setting the legal rent unit by unit or buiiding :
building would be superior in principle to across-the-board adjustment.
For one thing, all buildings do not have the same structure of operatincosts nor do their operating costs represent the same percentage of tota.
costs. For another, the freezing of rents when the legislation is enacted ma”
lock the landlord who happens to be operating at a loss at that momen:
into a permanent money-losing situation even if subsequent across-theboard adjustments are reasonable. But administratively a building-br
building adjustment process is too complicated to be practical’
In an attempt to prevent controls from inhibiting new construction’ mosl
rent control ordinances exempt buildings constructed aftet a certain date
from controls.
To prevent the quality of controlled units from deteriorating through
disinvestment, some ordinances contain provisions that permit tenants to
withold a portion of their rent if the property violates some provisions of
the building or housing code. In effect, an administrative remedy replaces
the discipline of the market’
Under some rent control systems tenants acquire a permanent right to
occupy their housing unit without a lease’ They become “statutory” tenants. In an uncontrolled market, rent is fixed by lease, but in a controlled
market this function of the lease is lost. Then, too, if the control system
includes vacancy decontrol or any other arrangement that permits a rent
increase when the tenant moves out, the Statutory Status prevents the tenant
‘$fhere controlled rents and market rents differ apfrom being forced out.
preciably, having status as a statutory tenant can be of considerable monetary value, a point to which our discussion will return.
‘When a municipality decides that it should move toward decontrol of
rental units a common scheme is vacancy decontrol. The intention is to
protect tenants from large and sudden increases in rent that might occur if
controls were abruptly lifted. Under vacancy decontrol an apartment loses
its controlled status when the tenant moves. In some cases the apartment
may be permanently decontrolled. In other cases the aPartment may be
rented once at market rates but then again comes under rent control with
subsequent rent increases limited to the annual adjustment noted earlier.
THE POLITICAL REALITIES CF
-1o;t e;onnn.-:- ‘.i:: .r -. –
:h: :’.::l :: -‘ .controls often reduce : – ::. ::: : ,
stock. As an income r.:r>::.: .:
‘rill
(^
be dis.’usseJ.
..,h.’
oro rnntrnlr
j-

— –

l:. ‘.
r-‘. : -. and collectivelv. it is ii,r:- i–.r : r l
:
nates. The policv rs r:r.:.:::::.
numerous group u’trhou: :-: j::. -:
an explicit tax increase :,:: .:-:. : , : ,
In an environment
organized and har’.
Marks’s comment lho:: ::. . …
portant one. Controls E’.::..: ,. -to some of its constituen.-‘ ” :: ,
transfer comes from lani.,-::. I treasury. If tenants are 4..:-.:: -:
vious political attracttor-..
To Marks’s commenis :.’:
One is that the economr. -:::
hend, are not seif-eliden: :
complicated enough not :
sticker. Thus, thev are i.,:these arguments are depl,-”..:
counted because theY are s – .
Second, rent controls f,ir::
figure who evokes s)’mF1::.
combat over controls the :
occupy the moral high gr,rof fairness or justice than .r
has had controls since 19-1. :’.
the Rent Equity Board. Th-., :.
legislation itself.
Finally, controls tend to -:-..::
usually, at current levels sc :. ,
burden, nor do tenants rec-:.: ..
with the passage of time ti’ ‘- -‘
and a variety of dislocation- : :
absence of problems in the .:- :
political proposition.

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Controis tend to i.e el:;:.: :a- ..:::;:;:t t:-i: r-: -:::::..
i..,,, *,otds,
:-,i:t:a] ;ontolerion,
In a polrticall’ con;trr at:’.r -i:ilrasliliri ro:l.ini ictu: rh. r,rtuas ol thc
marketplace and the importanec or FroFerrv riehrs mriirare againsr rhem.
stares ha’e passed legislation thar expressly forbids
local governments to impose rent controls. when controls are enacted the’
often have a strong pro-renant bias, since if tenant politicai power did nor
exceed landlord political power the controls would not have been enacted.
One place in which protenant bias often shows up is in the matter of periodic rent adjustment, a point to which we shall return.
FL’sure
1-,i
Shifnns Demani
In fact, a number of
THE MARKET EFFECTS OF RENT CONTROLS
The simplesr, or what we might call the first order effect of controls was
shown in Figure 3.7. By fixing the legal price below the market clearing
price, controls create a condition of permanent shortage or, in other terms,
a permanently uncleared market is created. Because the figure depicts the
short-term situation the supply curve is shown as having very little elasticity. How large a shortage is created depends primarily upon how much
below the market clearing price is the controlled price and how elastic is
the demand for rental housing.
Figure 10.1 shows a somewhat less obvious effect of controls. Controls
tend to promote overconsumption of housing in the controlled sector. This
shifts some demand into the uncontrolled sector and elevates prices there.
By overconsumption we mean that some people who are able to obtain
controlled units will consume more space than they would if they had to
pay the market clearing price. For example, an empty-nest couple in a fiveroom apartment might move to a rhree-room apartment if they had to pay
market rent for their five-room apartment. But if a controlled five-room
unit rents for no more than an uncontrolled three-room unit it makes no
sense to move. An affluent suburban couple who like to come into Manhattan or Boston or the District of Columbia for a weekend or two each
month may maintain a controlled apartment rhere. If they had to pay the
market rent they might give up the apartment and instead rent a hotel room
for a few days each month. How much controls elevate rents in the uncontrolled sector will depend in part upon the relative sizes of the two
sectors. If the controlled sector is large relative ro the uncontrolled sector
then, cet. par., the elevating effect should be larger. Then, too, the effect
should be larger if there are similar types of units in both sectors-that is,
if there is a high degree of substitutability between some controlled and
uncontrolled units.
Figure 10.2 shows another frequent though not inevitable effect of controls. In the long term controls tend to reduce the supply of rental housing.
That is, they shift the supply curve to the left. One might wonder how this
R’
R
Overconsumption bv son-r::r:-:
to the uncontrolled
‘e;: :. :
that sector from R to R
– —
,
tL:r.: -.
and that unsatisfied dem’l:,: .:
– .
in the uncontrolled sect’ :
has no guarantee that u:.:, –
can be, given that most
quently be brought
undei: :::
an investment made un;:
legislative acts. Anthonr i,
posed controls

,,.

-,
on unitr r:. .:
also notes that “Manl’ mJ’ : -.
loans on rental housrflg !: :exemption clauses exist ir :’=
that it is not inevitable tha: : ”
notes, for example, that rr. .
conian than in New York
C

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156
REN
SELECTED APPLICATIONS
likely to further depress the ‘. :i
perception of shortage. Thus. :-:
Figure 10.2
The Effect of Controls Upon Supply
OTHER SIDE EFFECTS
The side effects of control. =:=
it is hard to rnter’, .::
interference will usuallr Proj-:=
ciple that
tion. The permanently uncleaie j
units will bring into being :=::
with the shortage.
One phenomenon is “rat: :l::
taining a controlled unit must :
pling of streets, rushing to i:: ::
estate classified ads the minir:
course, also bring into beir:i l.
Quantity
If
investors fear future extension of controls the supply curve of housing may be shifted to
the left. If rents are 6xed at R and controls shift supply from S to S’ then the shortage will
increase from BC to AC.
now free of control will be subsequently controlled, and thus there appears
to be no depressing effect upon new investment.
As will be shown subsequently, controls may also shrink the supply of
rental housing by encouraging conversion to nonrental uses, notably condominiums and cooperatives or, in the extreme’ by promoting abandonment. Controls are generally enacted where there is a feeling that there is
a shortage of housing. By shortage we do not mean the economist’s definition of a situation in which the market does not clear because the quantity
demanded exceeds the quantity supplied. Rather, we mean a less precise
layman’s meaning that, somehow, there is not as much housing as there
should be in some particular price range(s). In some cases no finding at all
regarding rent levels is necessary. For example, in L974, New York State
enacted the Emergency Tenant Protection ACT (ETPA) that permitted municipalities to declare “rental emergencies” and impose controls on previously uncontrolled units if the municipality simply made a finding that its
vacancy rate fell below 5 percent. But because of both the overconsumption
and the discouragement of new construction noted above, controls are
would rent for $1,000 ? mr-:li
$600 a month there u’ill be : -‘:
the legal rent plus $200 a n::-:
bribe of a few thousand doll::= :
create a category of econor:-:c ;
In principle, price conirc.; –:
buy the product one need’:::
coupon. If the number o: :::
available then, in princiPlt.:::
there is no longer anv exc.ss :
motivation for iilegal tra.s:;l
eliminated. During Vorld \’::
tion of price control and i:l:’-:.
and meat. But clearlv. ratlcar:-:
ing markets.
In New York Ciq ‘ cont: category of proPertl’ rig,ht. .: :
trolled apartment is a rish: :,:;
year after year. Under lari.
:r:
:
a rent-controlled aPartme.i :-:
tenant dies (or moYesr tht :.::
in tenancy. The question
apartment maY also be ;: ..
‘sfhether the same rights r: s:
stitute family in a common ::..
riage, or adoPtion”) has i==:’
Associates the issue \’as \:::–.
controlled unit after his lc’:.::
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