There is probably nothing that distorts a city worse than rent regulation.

It accelerates the
abandonment of marginal buildings, deters the improvement of good ones, and creates
wondrous windfalls for the middle class-all the while harming those it was meant to help,
the poor. The vast majority of economists agree. Rent control was adopted in new York city
as an emergency measure during word war ii but it has been kept ever since. Although rent
control is most stringent in new York city, today more than 200 cities (including Washington
dc, Boston, los angles and san Francisco) have some form of rent control. More than 10
percent of rental housing in the united states is under rent control.

Rent controls are price ceilings or maximum rents set below equilibrium rents. Although
designed to keep housing affordable, the effect has been just the opposite-a shortage of
apartments . for exam ple, figure 2-10 might refer to the market for apartment rentals in
new York city. Without rent control (and assuming for simplicity that all apartments are
identical) the equilibrium rent is $1.000 and the equilibrium number of apartments rented is
1.6 million. At the controlled rent of $600 per month

2 million apartments could be rented. Only 1.2 million apartments are available at that rent,
so there is a shortage of 800.000 apartments. Indeed, apartment seekers would be willing to
pay a rent of $1.400 per month rather than go without an apartment when only 1.2 million
apartments are available.

Rent control introduces many predictable distortions into the housing market. First, as we
have seen, rent control result in a shortage of apartments for rent. This evidence by the
great difficulty and time required to find a vacant, rent controlled apartment to rent. Second
owners of rent-controlled apartment usually cut maintenance and repairs to reduce cost
and so the quality of housing deteriorates. Because of shortages to which rent control gives
rise, however apartments vacated as a result of inadequate maintenance can be filled easily
and quickly. Third, rent control reduces the return on investment in rental housing, and so
fewer rental apartment will be constructed. Fourth rent control encourages conversion into
cooperatives (since their price is not controlled), which further reduces the supply of rent
controlled apartments. Finally, with rent control, there must be substitute for market price
allocation: that is non price rationing is likely to take place as iandlords favor families with
higher incomes.