Rent Control, Fair or Unfair?

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                New York is known as one of the biggest cities in the world. It is known as one of the megalopolises in the United States. It is the most populated city in the country. By the year of 2002, this megalopolis was populated by more than 8 million people. As we know, land is a limited resource and it earns rent. In a highly populated city such as New York, with more than 8 million inhabitants, and only 1,213 km² of total area, the land is highly limited and highly demanded as well. Usually, when an item is very limited, the value of this particular item will be estimated very high and only those who can afford it will be able to have it. Why is rent control anywhere scandalous and especially in New York City?

                In New York, to save the middle class population from paying a highly charged rental, they have established a rent control. New York City has already officialised laws for rent control since the Second World War in 1947. They were aware of the rising rents and they knew that they had to protect the people, especially the middle income earners, from this phenomenon. The problem with a price regulation, or a rent ceiling is; there might be a black market so sellers will sell their products at the price they estimate it. Landlords usually pursue their self-interest, since they want to make the most profit possible and there will be a bargain and they will choose the most profitable situation for them and finally the law will be ignored. 

                Housing is a necessity for everyone, either they have to own a house or rent a house, as long as they are protected by a roof while they are sleeping at night. Everybody needs a shelter. Therefore, the demand for this item, housing, is practically inelastic even though the income proportion of this particular need is relatively high. People living in New York City can choose, according to their income, to live in luxurious apartment or a normal apartment. In that case, between these two types of apartment, the demand is perfectly elastic. There is a rising in the rental prices in this megalopolis since the beginning of the 20^th century. Some people, the riches or the elites, are able to afford more than the others, the middle income earners. The elites or the upper-class are willing to pay more than the market price. That is when we talk about the consumer surplus. The figure below shows this effect.

              When the government put a rent ceiling on the rental prices in New York City, the riches are able to pay more; they can even pay more than the market price. Rent ceiling is usually put below the market equilibrium price. Therefore, they possess a consumer surplus. Since a consumer surplus is when they receive more benefit from the service or good over the price that they are paying. This only works with the elites and riches in New York City. The type of apartments which are put under the rent ceiling will be very demanded by the middle-class people and by the upper-class people as well since they are all pursuing their self-interest and they want to spend less on this item. The figure below shows the rent control phenomenon.

                The figure above shows that when there is a rent ceiling, there will be a shortage in the rent market. This shortage is due to the unwillingness of the suppliers to sell or rent their property at the imposed price. The value of the rent is estimated higher by the market, but the price equilibrium is too high and might be a burden to the people, especially the middle-class. To release this burden, a rent ceiling is required. But as stated before, the implementation of a rent ceiling might cause a certain problems since usually a price cap is put below the equilibrium price. A rent ceiling which is set under or below the equilibrium will cause a housing shortage as shown in the figure above.  The landlords are not willing to let their apartments as such a low price imposed by the government. Therefore, there will be an increased in search activity by the renters and finally a black market. a shortage occurs when the quantity demanded is more than the quantity supplied. There is an underproduction and a market failure. An illegal exchange happens when the landlord is looking forward to increase the rent because the rent ceiling is below the market value, and it is called black market. Only the rich ones can afford the market price and they are the ones who will get the apartments in the black market.

                To avoid these kinds of things to happen, the government should supervise the renting activity by not letting the landlords increase their rent prices and make sure that they are all willing to rent their houses at the price imposed. A control should be implemented to control this activity. They should record every owner’s details and every renter’s details. They have to make sure that only those who deserve to rent the apartment are actually renting it. An organization should be created to supervise this activity.

                The main issue in the rent-ceiling policy is the unfairness of it. In New York City, rent control has become inefficient since the beginning of its establishment in 1947. For example, Charlie Rangel, who is the New York democrat and at the same times a powerful chairman of an organization in the United States, pays an amount for his rental which is less than what he would pay in the open market. The main purpose of rent control which is to help the middle income earners has not achieved its goal here. A powerful wealthy individual is the one who is benefiting from this policy and of course; he is not the only one. This shows that there is unfairness and this system is not benefiting the poorest but the most connected instead, even though unfairness is not against the law.

                There are almost 90 thousand New York households, who admitted making more than 100,000 USD a year who are renting an apartment below the market rent and this is due to the rent control law. This is a lottery allocations system, which means that only those who are lucky will benefit from this price cap and not the poorest. In addition, there is also the first-come, first-served allocation system. Only the first people who know about the information of a new good rent-stabilized apartment will get the rent below the market value, and it is usually the most powerful people, those who are controlling the city or those who are well connected.

               In conclusion, beside the shortage of the housing market due to the rent ceiling or the black market caused by it, it is hard to produce a fair outcome out of this law. Unfairness will still occur and rent ceilings anywhere will not benefit the people who need it the most but mostly the most powerful or wealthiest instead. This law will be taken advantage by the well-connected ones. Therefore, rent ceilings can be unfair, despite their main purpose which is to lessen the burden of the poorest in the city. If the government puts a rent ceiling, then they should control the activity. They should make sure that it is benefiting the middle-income earners and the poorest and not the richest. The landlords should be obliged to register their apartments and rent them to those who need it the most, or otherwise, it is illegal and it will be sanctioned. If the government is not willing to do so, therefore, a rent ceiling is useless.