University of South Florida

GEA1_Case Study

Jeffrey Binta

ECO2023 Section 701

Spring Semester 2023

Professor Erika Martinez

April 25, 2023

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The rental market is a very important and vital market to the everyday people and

our economy as a whole. It is vital to the housing market at large, and can be one

of the only ways for people to find low-incoming housing. A market, as described by

Eric Chiang, is defined as a “institution that enables buyers and sellers to interact

and transact with one another” (Chiang 2020). The rental market is imperative as

the market allows people to be as flexible as they can be with their housing

decisions without having to fully deal with the pressures of being a homeowner,

especially in today’s economy. There are multiple benefits to being a renter, such

as having a greater flexibility on where someone would like to live, not having to a

pay maintenance costs or repair bills, in some cases not have to pay for electricity

or extra money for parking, not having to pay property taxes, etc. This is different

for homeowners however, as homeowners are fully responsible for all maintenance

on their home, must pay property taxes and also do not have the flexibility that

renters have when it comes to where they live because homeowners are restricted

to areas where they can afford the cost of buying a home which in certain areas

can cost more than bargained for. The market in the United States is fluctuating

and growing, parallel to the inflation in the current economy continues to rise. To

begin to explain why the rental market as risen, we are able to use supply and

demand to show how the market has grown. There are a lot more people who are

currently trying to rent out new homes and apartments then there are available for

rent. In some places, new apartments and homes are being built, however property

values and rent have increased. People had wanted to buy homes but had to

choose to become renters because of the property values for homes being so high.
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The demand for homes is growing currently, and the production of homes is not

able to catch up. This leads to a shortage in the market, and shortages in the

market lead to people not getting the homes that they need, or paying for homes

and apartments that are severely overpriced. The problem is that, it is very hard to

see rental costs decreasing in the future because of the current economic climate

of our world and how inflation just continues to rise and cost of living continues to

go up with no end in sight. The purpose of this paper is to speak on the rental

housing market, how the market would look in a free market, the benefits and costs

of the market being free, and showing in which how the government intervenes in

the rental housing market and how it is mainly for the best.

Continuing the discussion on the rental housing market, the market is very

competitive and will continue to stay this way, and would be worse if it was

operated without government intervention. There is a scarcity in the amount of

available housing relative to the demand of said housing, as stated in the previous

paragraph, but there is also a surge in home buying because homes are becoming

more valuable commodities. Due to this, the housing market supply and demand

are in a bad spot leads to there being not enough homes on the market to meet

demand from buyers, because of homes becoming more valuable. This makes

renting the more viable and appealing option to most people, due to the flexibility

that being a renter has. However, it is still a hard market to maneuver because

prospective tenants that have money are basically able to call dibs on the best

environments and apartments, as well as them being able to offer more than the

monthly rent in order to land the spots they want. In economic terms, this is an
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example of willingness-to-pay which is an “individual’s valuation of good or service,

equal to the most an individual is willing and able to pay”. (Chiang 2020). Due to

the fact that as the demand for the product grows and that someone’s willingness-

to-pay will become higher than if the supply and demand was equal, this definition

fits in the rental market (Graph 1). Inflation issues are making the market harder to

maneuverer as housing costs continue to increase. Increased inflation is impacting

not only just the price of homes, but everyday costs and expenses. Due to the

costs of housing increasing, people have to make hard adjustments to be able to

afford where they are living. Rental rates have increased substantially, and in most

cases, renters are relatively young people or families or people that are usually a

little lower income which is why inflation hits a lot harder for these people.

To speak on how the government intervenes in the rental market, rent

control is a prominent resource that is used. Rent control can be described as a

program that places a limit on the amount that a landlord or homeowner is able to

demand for leasing a home/apartment or renewing said lease. Rent controls are

put in place to attempt to keep living costs affordable for residents with lower

incomes. An advantage of rental control can be seen as rental prices in most cities

are beginning to rise faster than the wages for moderate income jobs and rent

control grants an price ceiling to be put in place which enables residents to be able

to afford rentals that they would have trouble affording if such intervention was not

put in place. Price ceilings are defined as “a maximum price established by

government for a product or service, and when the price ceiling is set below the

equilibrium, a shortage results” (Chiang 2020). An example of price ceilings being

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implemented positively is in St Petersburg. A company, Blue Sky Communities

created apartments that are reserved for residents earning less the 80 percent of

area median income (Cowan). By making these affordable units, the company and

the community was able to put a ceiling for the area’s lowest earners, and still give

them a good, affordable environment to live in. Price ceilings are good in the rental

market as it allows people on fixed or moderate incomes to be able to live well and

not have to be afraid of a major rise in cost. However, there can be times where

price ceilings can fail when the quantity of the product demanded exceeds the

quantity supplied a shortage of the product is created. Price ceilings can also

create deadweight loss. Deadweight loss happens when supply and demand are

out of equilibrium, and there is a market inefficiency. In the case of the rental

market, when apartments get sold, the supply of the apartments available decline

because there are people who want to rent an apartment and can afford to but

because the product is unavailable, they are not able to. This fits into the argument

of efficiency vs equity. Rent control can lead to scarcity in housing, which can make

landlords believe that it is not in their best interest to take care of the rental

property, which leads to decreasing quality of houses and amount available. From

the standpoint of equity, rent control is able to help tenants by keeping their

housing costs lower, but can create problems for newer tenants or people looking

for places, as they may be forced to pay higher rents, or may even not be able to

find housing at all. It is a difficult tradeoff, but it also cannot be helped and some

believe that the positives that rent control brings outweighs efficiency costs. The

rental market as a free market compared to what the market looks like with
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government measures in place can be shown by the excess demand graph which

shows that with the over demand in housing being needed the supply of the

housing declines, which then creates what the free market looks like, where there

is most likely is a lesser supply of available rentals. (Graph 2). To go back to my

point on willingness-to-pay from the last paragraph, landlords are trying to take

advantage of the willingness-to-pay due to the market, and hide it by saying it’s

because of inflation in order to maximize profits. “Most landlords aren’t increasing

rents to cover for taxes and expenses, but to maximize profits” (Berdychowski).

This is why government intervention and rent control is important because it can

allow people from being taken advantage of. Another example of this happening is

in another Florida county, where landlords were attempting to sue in order to stop

rent controls being put in place. They had said “It is adverse and antagonistic to the

public interest...to allow the Rent-Control Ordinance to be...enforced by Orange

County where the Ordinance is unlawful and invalid” (Martin). However, this was

not the case as the county was said to have a shortage of as many as 26,500

housing units due a 300,000-resident rise in the last decade. These organizations

are using this to their own benefit, which adversely affects the people that do need

homes that may not have the incomes to be able to afford the homes/apartments

that they need. The government intervening is good for the market, and I believe

that if the rental housing market did not it, problems such as discrimination of

tenants would be a lot more prevalent, especially due to the number of people

looking for homes. To deter this, the government passed the Fair Housing Act.

“The Fair Housing Act protects Americans from discrimination based on race,
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color, national origin, religion, sex, familial status and disability.” (Demsas).

Without this law, people can be prevented from having a fair chance to obtain the

housing they seek. However, the Fair Housing Act does not shield people from

being discriminated based on factors that are beyond their control. For instance,

landlords are able to discriminate against tenants with children or refuse to show

immigrant potential tenants’ apartments in certain areas. This discrimination can

be hidden, but it is reality for a lot of potential tenants, and the market that we

currently face does not help.

To continue to the discussion of the rental market and rental control polices

from the previous paragraphs, there are specific examples of deadweight loss that

further exacerbate the problem. Again, deadweight loss is the cost to society that

results from market inefficiency, which arises in a market when supply and demand

are out of equilibrium. Taxation, price ceilings and price floors can all result in

deadweight loss in a market. Price ceilings are specifically what results in

deadweight loss in the rental market. They are the highest prices for products set

by the government or another body, and when they are set below the equilibrium, a

shortage will occur. Price ceilings can lead to a poor allocation of resources, and in

the long-run create worse products. I believe that college apartments are a specific

instance of deadweight loss in the rental market currently. Living areas around

colleges prices are raising exponentially, as while colleges are becoming more

difficult to get into, and more people are going to college than ever, the areas are

becoming more exclusive. Because of the competitiveness of the areas, a

deadweight loss occurs because as units are being sold, the supply of available
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rental apartments begins to diminish. This is an example of scarcity in this market,

and this is because there are still people willing and capable of being able to afford

to live in these areas, but are no longer able to do so, as for example, because

they were not quick enough in their action. The result of deadweight loss is that

those who were previously able to rent are now left without housing and may have

to commute, pay significantly more for housing, or finish by ending up with subpar

housing. Those with lower incomes and those who were unprepared are the people

that will inevitably suffer from deadweight loss. Although this is an unintended

result of the market, it does not alter the fact that the potential renters are

dissuaded and blocked as a result of the economy, over which they have no

control.

If I was a social advocate, dealing with the problems that I’ve raised in this

paper, I believe that there are regulations that, in my opinion, can assist the rental

market be better controlled, and that may help reduce the problems that the market

in totality face. A problem that is faced in the market in prejudice towards potential

and current tenants. A solution to this problem could be making landlords subject to

loss of property in the event that they are discovered to be making discriminatory

housing decisions. If this was to occur, I believe that this could reduce the

likelihood of discrimination occurring, as it is a nuclear deterrent. No landlord would

want to risk losing their employment or livelihood because they were discriminating

against a tenant, who is actively giving the landlord money and paying to live there.

Obviously, some people aren’t bright and are willing to through away what they

have, but I believe that this is a step that could help fix the problem of
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discrimination in the market. I also believe that giving renters some wiggle room,

particularly in these unsettling times, and giving people more opportunities to rent

by creating more apartment complexes and low-income housing are two solutions

that, hopefully, could let the rental market be better regulated and allow for more

people to get a chance at being able to rent. This, in my opinion, might help lower

rent prices and make it possible for people on fixed incomes to find livable housing.

A way that our current government intervenes in the market that I believe is

effective is the government providing rental and housing assistance. The U.S

Department of Treasury created the Emergency Rental Assistance Program, in

order “to support housing stability throughout the COVID-19 pandemic” (US

Department of Treasury). National programs like the ERA and local programs in

states allow people who need it to have their rent, utilities, and energy costs paid

for or reduced.

In conclusion, the rental market is not in the best state, due to the economy

being in a bad place, where people can sense a housing crisis looming, and rent

prices are contuning to climb every year. It is a sad fact that the people that are

being affected can not control what is happening to them and the situation that they

are being put in, but it is the nature of the beast. The only postive outlier is that with

governmental intervention being in place, it allows the rental market to have some

equality and allows for moderate and low income residents to be able to live in

affordable housing.
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Bibliography

Berdychowski, Bernadette. “What will stop Tampa Bay’s rising rent? There’s no

“one solution”. Tampa Bay Times. Published January 21, 2022.

https://www.tampabay.com/news/real-estate/2022/01/21/what-will-stop-tampa-

bays-rising-rents-theres-no-one-solution/

Chiang, Eric P. Microeconomics Principles for a Changing World. New York: Worth

Publishers Macmillan Learning, 2020.

Cowen, Kellie. “New rent-controlled apartments to tackle St. Pete affordable

housing crisis”. Published March 29, 2022. Fox 13 News.

https://www.fox13news.com/news/new-rent-controlled-apartments-to-tackle-st-pete-

affordable-housing-crisis

Demsas, Jerusalem. “There’s a housing crisis. Can the federal government fix it?”

Published June 17, 2021. Vox

Martin, Ken, “Florida landlord trying to stop rent control initiative”. Fox Business.
Published August 21, 2022.
https://www.foxbusiness.com/markets/florida-landlords-trying-stop-rent-control-
initiative

U.S. Department of the Treasury

https://home.treasury.gov/policy-issues/coronavirus/assistance-for-state-local-and-tribal-
governments/emergency-rental-assistance-program