Price ceilings are destructive because they prevent markets from functioning correctly. Rent controls set the price ceiling for possible renters. This causes quantity of apartments supplied to fall, and the quantity demanded of possible spaces to rent to rise. This price ceiling is binding because it results in a shortage. Rent controls cause a new equilibrium price to emerge that is not market-clearing, which isn't good.
Consequences of Rent Controls:
- There is a reduced availability of apartments, and they're more difficult to obtain.
- Lower quality apartments are in abundance because landlords have no incentive to improve spaces due to the overabundance of potential renters.
- By reducing quality, you are effectively reducing quantity.
- A black market for rental spaces emerges.
- Apartments can be misallocated since the people who value them the most don't necessarily get them.
- Rent controls have impacts on other markets.
- An unfair burden is placed on the landlords.
- Discrimination and other insidious costs emerge since rentees can afford to be pickier.
- Monitoring and enforcing the law itself is costly.
- Over the long-run, supply curves will shift inward.
- It's destructive because police officers aren't contributing anything else to society--opportunity costs and the broken window fallacy.
- Even if the police are doing a good job, taxes must be raised, which is costly.
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