5.2 Rent Controls: A Case Study of

Price Ceilings

For long periods over the past hundred years, rent controls existed in
London, Paris, New York, and many other large cities. In Sweden and
Britain, where rent controls on apartments existed for decades, shortages
of rental accommodations were chronic. When rent controls were
initiated in Toronto in the mid 1970s, housing construction slowed and
shortages soon developed.

Rent controls provide a vivid illustration of the short- and long-term
effects of this type of market intervention. Note, however, that the
specifics of rent-control laws vary greatly and have changed significantly
since they were first imposed many decades ago. In particular, current
laws often permit exemptions for new buildings and allowances for
maintenance costs and inflation. Moreover, in many countries rent
controls have evolved into a “second generation” of legislation that
focuses on regulating the rental housing market in addition to controlling
the price of rental accommodation.

In this section, we confine ourselves to an analysis of rent controls that
are aimed primarily at holding the price of rental housing below the free-
market equilibrium value. This “first generation” type of rent control