Some of University students in my housing area are complaining that some of the landlords of their renting houses charging excessive rental rate. It is normal that tenants are paying about RM800 – RM1,000 a month for a two bedroom house. I am thinking about the policy of imposing limits on the rents that landlords can charge to the tenants. The purpose of rent-control policy is to ensure that the students can find affordable rental houses.
The questions are what type of price control we want to implement? How can we influence the landlords to follow the policy? What is the best policy for the tenants and the landlords of the house? We know that owners of those houses face daily concerns, such as covering rising insurance, upkeep, water, plumbing, landscaping and other costs. The problem is that repairs are not in a timely fashion. Is it possible in Malaysia that the owners to pass through half of the costs of capital improvements to tenants? For example, when the landlords painting a bedroom for RM1,000, he or she may divide half of that cost to the tenants, to cover the cost of painting.
Is it true that a rent control policy that reduce the price for which a landlord can rent their houses. Clearly this will hurts the landlord, but it also can harm renters. The lower the rent for this house will make building or buying houses in this area less profitable. If the landlords can’t make a profit building or buying a house, then they will not build or buying them. Over time, the number of rent-control houses should decrease as old houses become run down and landlords lack the incentive to build new one.
Thinking critically about policy:
1. This article describes that significant costs associated with rent-control policy. Despite these costs, rent-control policy is very popular with tenants and local politicians. Why would some tenants support rent-control policy? Do all tenants in the market gain from rent control policy?
2. Economists are critical of rent-control policy for several reasons. One reason is that the policy creates a deadweight loss. The magnitude of this deadweight loss depends on the slopes of the demand and supply curves. What causes the deadweight loss? What would the supply curve have to look like for the deadweight loss to equal to zero?