Price Control

Price controls are a type of government intervention in markets to change the existing market price by imposing a maximum price (price ceiling) or minimum price (price floor). A price floor is the minimum price sellers of a good can charge consumers and a price ceiling is the maximum price the government can set for a good.

DRAW PRICE FLOOR AND PRICE CEILING DIAGRAM HERE

Price floors are meant to help producers earn enough money to stay in business. For example, a minimum wage is a price floor for workers—it guarantees that employers must pay at least a certain amount per hour.

Rent stabilisation is a way the government steps in to regulate the market to make things fairer for certain groups, and in this case, tenants. It helps tenants by making sure their homes stay affordable. For example, in November 2024, the US Supreme Court rejected a bid by landlord groups to challenge rent stabilization. The article talks about rent stabilisation laws in New York City, which are rules that stop landlords from raising rents too high or evicting tenants unfairly.

This initiated a price ceiling, as landlords weren’t allowed to price rent higher than a certain level. On the graph, this would lead to an increase in the demand for housing, as the price ceiling is below the equilibrium price. This is shown between Qe,Pe and Qd,Pc. On the other hand, since landlords aren’t allowed to price rent higher than a certain level, they won’t produce as much goods as before, as they are now less willing to, lowering the quantity supplied below the original equilibrium. This is shown between Qe,Pe and Qs,Pc.

This would result in a shortage of rent housing in New York City because since the rent has been lowered and the quantity demanded has increased but producers are now less willing to supply housing, there would be excess demand for housing, as not everyone would be able to get rent housing due to not enough of it being supplied and they’d have to have a long waiting period of tenants wanting to secure housing, leaving some people homeless during this time. But the small percentile of people who do receive the rent get to benefit most from it as they are now paying less rent than before. Landlords may even stop really taking care of the buildings because they might feel that since they can’t charge higher rents, it’s not worth spending money to fix or improve their properties.

Whereas, if a price floor was to be initiated, it would make housing more expensive for tenants. Since the minimum rent would be set above what the market naturally allows (the price equilibrium), tenants who can’t afford the new minimum rent might be priced out of housing altogether. And then the demand for housing would decrease because fewer people would be able to afford higher rent, resulting in homelessness. However, landlords have more money to spend on property maintenance and improvements since they’re guaranteed a higher minimum rent.

For producers, with rent set above what many tenants can afford, landlords might struggle to fill all their apartments, leaving units empty and unused. This results in inefficiency in resource allocation as housing units would sit empty because they’re priced too high, even though people need homes.

While a price floor might benefit landlords by guaranteeing higher incomes, it would hurt tenants overall by making housing less affordable and reducing access for low-income renters. And while a price ceiling can make housing more affordable in the short term, it often creates more problems in the long run. Tenants might struggle to find apartments due to shortages, and landlords might stop investing in properties or new housing.