The unique feature of rent controls, however, as compared with price
controls in general, is that they are applied to a highly durable product
provides services to consumers for long periods. Once built, an apartment
can be used for decades. As a result, the immediate effects of rent control
are typically quite different from the long-term effects.
The short-run supply response to the imposition of rent controls is
usually quite limited. Some conversions of apartment units to
condominiums (that are not covered by the rent-control legislation) may
occur, but the quantity of apartments does not change much. The short-
run supply curve for rental housing is quite inelastic.
In the long run, however, the supply response to rent controls can be
quite dramatic. If the expected rate of return from building new rental
housing falls significantly below what can be earned on other
investments, funds will go elsewhere. New construction will be halted,
and old buildings will be converted to other uses or will simply be left to
deteriorate. The long-run supply curve of rental accommodations is
highly elastic.
Figure 5-4 illustrates the housing shortage that worsens as time passes
under rent control. Because the short-run supply of housing is inelastic,
the controlled rent causes only a moderate housing shortage in the short
run. Indeed, most of the shortage comes from an increase in the quantity
demanded rather than from a reduction in quantity supplied. As time
passes, however, fewer new apartments are built, more conversions take
place, and older buildings are not replaced (and not repaired) as they