Government Intervention

Government Intervention





Government Intervention

            Rent control is a form of price control, where the government sets the maximum price, on the rent paid by the tenants. The property owners cannot charge higher prices, since the controls are set below the equilibrium. Rent controls lead to shortages since the demand for the houses increases. This would normally increase the prices if there were no price controls in the market. The shortage means that the people will go to look for houses in the areas that are not controlled. This excess demand then increases the prices in the controlled area. These prices may sometimes be higher than they normally would if the government did not intervene in the market. New York City has had rent controls since the Second World War. The government imposed the rent control fearing that the return of the soldiers from the war would increase the rents. It therefore wanted to protect the people from having to pay exorbitant house rent.

The rent controls are still imposed today. Individuals who have lived in apartments since before 1971 are protected by the rent controls. The number of rent controlled houses in New York city has decreased from over two million in the 1950s to about 40, 000 in 2008. In some cases, the property owners have found it hard to deregulate the apartments because of the successive rights. This is where a child can continue living in the parent’s house after death, and pay the rent at the same rate. Where the houses have been deregulated, the property owners can charge any amount they wish (RGB, 2011). Most of the property owners are keen towards deregulating. Some of them charge rents that are above the market price, therefore altering the equilibrium. In most cases, many property owners would be cautious before increasing the rent to that above the market price. However, this is not the case in New York City, where there is a high demand for the houses.

Rent controls have had negative and unintended consequences. In some cases, the property owners rent to their friends and families, or they will use the building as their residence. Another unintended consequence is the increase of property crime. In some cases, a tenant may sublet the apartment illegally, at a higher price. This means that the tenant sublets the apartment that he does not own, and he will sometimes charge a very high rate. Some people are willing to do this because of the high demand in the market, which does not correspond to the supply. The property owners have a financial burden, since, in most cases, they do not have the money to maintain the building. This means that the apartments deteriorate and depreciate since they are not maintained properly. The property owners do not have an incentive of maintaining the building or improving it since people are willing to rent it as it is. This has compelled some property owners to enforce the idea of key money, where they rent the apartment at the allowed rent, but they charge high fees for the key to the apartment.

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