Figure 5-4 The Short-Run and Long-Run Effects of Rent Controls
wear out. As a result, the quantity supplied shrinks steadily and the extent
of the housing shortage worsens.
Rent control causes housing shortages that worsen as time passes.
free-market equilibrium is at point E. The controlled rent of forces rents
below their free-market equilibrium value of The short-run supply of
housing is shown by the perfectly inelastic curve Thus, quantity
supplied remains at in the short run, and the housing shortage is
Over time, the quantity supplied shrinks, as shown by the long-run
supply curve In the long run, there are only units of rental
accommodations supplied, fewer than when controls were instituted. The
long-run housing shortage of is larger than the initial shortage of
Along with the growing housing shortage comes an increasingly
inefficient use of rental accommodations. Existing tenants will have an
incentive to stay where they are even though their family size, location of
employment, or economic circumstances may change. Since they cannot
move without giving up their low-rent accommodation, some may accept
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