The following will be discussed in this chapter: A short history of the labor movement, labor legislation, the economic power of unions and employers, the economic power of monopsonies, collective bargaining, the strike.
Trang 1Chapter 34
Rent Control
Trang 2Chapter Outline
• RENTS IN A FREE MARKET
• REASONS FOR CONTROLLING
RENTS
• CONSEQUENCES OF CONTROLLING
RENTS
• WHY DOES RENT CONTROL
SURVIVE
Trang 3Rent Control
• Laws that restrict the ability of landlords to
raise the rent from one year to the next
• This is a form of a price ceiling (the level
above which a price may not rise)
• These laws are more prevalent on the coasts: Boston, New York City, more than 100 cities
in New Jersey, and San Francisco and San Jose in California
• Such laws typically come into being when
market rents are rising quickly
• The east coast laws date from World War II
and the west coast laws date from the skyrocketing land prices during the 1970s
Trang 4Rents in a Free Market
Quantity
Rent
Demand
Supply
A
R*
B
C
0 Q*
• Value to the renters:
• 0ACQ*
• Renters pay landlords
• OR*CQ*
• The variable cost to landlords:
• OBCQ*
• Consumer Surplus to renters:
• R*AC
• Producer Surplus to landlords:
• BR*C
Trang 5Rent Control Relevance
• Rent control is only relevant if it is below the market rent
• A controlled rent above the market rent is
irrelevant
– The landlord must accept the market rent to attract tenants.
– Charging above the market rent is not in the landlord’s interests because such a rent would not attract tenants to the landlord’s building
Trang 6What’s Wrong with the Rent
Control
• The gain to the renters who keep their
apartments and pay less rent is less than the loss to the losers who are
– people who lose their apartments and – landlords who receive less rent
Trang 7Rent
Demand
Supply
A
R*
B
C
0 Q*
R min
E
F
Demonstrating the Case Against the Rent Control
• Value to the renters:
• 0AEQs
• Renters pay landlords
• ORminFQs
• The variable cost to landlords:
• OBFQS
• Consumer Surplus to renters:
• RminAEF
• Producer Surplus to landlords:
• BRminF
• People who must move out:
• Q*-QS
Trang 8The Short and Long Run Consequences of Rent Control
• In the short run supply and demand for apartments in inelastic Rent control
lowers rent without much displacement
of renters.
• In the long run supply and demand for
apartments gets more elastic and the negative consequences become more
Trang 9Comparing the Short Run and
the Long Run
Quantity
Rent
Demand
Supply
0 Q*
R min
Quantity Demand
Rent
Supply
0 Q*
R min
Q S Q D
The Short Run The Long Run
Trang 10Consequences of Rent Control
• Landlords have a motivation to get tenants
out of their building by failing to maintain it
• Renters have an interest in “selling” (on an
illegal black market) their rights to a lease
• People go to funerals to negotiate subleases from the dead person’s executor
Trang 11Why Rent Control Survives
• The people who benefit from Rent Control
(people who continue to live in the same apartment for years) are the same people who vote
• By definition, someone who is displaced from
an apartment or someone who would like to move in but cannot find a place, cannot vote
to overturn the law because they do not live in the city