Rent Controls: Waste, Search Costs, Lost Gains from Trade, and Misallocation of Resources

At the controlled price, landlords have more customers than they have apartments, so they can pick and choose among prospective renters
- Landlords prefer to rent to people who are seen as people who are more likely to pay the rent on time
- Landlords can discriminate even if there are no rent controls, but without rent controls, the vacancy rate will be higher because the quantity of apartments will be larger and turnover will be more common
- So, landlords who turn down prospective renters will lose money as they wait for their ideal renter
Rent controls reduce the price of discrimination, so, when the price of discrimination falls, the quantity of discrimination demanded will increase
At the quantity supplied under rent control, demanders are willing to pay more for an apartment than sellers would require to rent the apartment
If buyers and sellers are free to trade, they would both be better off, but under rent controls, the mutually profitable trades are illegal and the benefits don’t occur

Apartments under rent control are allocated haphazardly
- Some people with a high willingness to pay can’t buy as much housing as they want, even as others with a low willingness to pay consume more housing than they would purchase at the market rate
- Ex: older couple who stay in their large rent controlled apartment even after their children have moved out
- Great deal for older couple, but not good for the young couple with children who now are stuck in a cramped apartment with nowhere to go

Rent regulation: limits price increases without limiting prices
Rent regulations can protect tenants from sharp increases in rent, while still allowing prices to rise or fall over several years in response to market forces
Rent regulation laws usually allows landlords to pass along cost increases so the incentive to cut back on maintenance is reduced