What is Rent Control

The practice of imposing a legal maximum (rent ceiling) upon the rent in a particular housing market, below the equilibrium rent is called rent control. If this maximum is above that market’s equilibrium rent (different rental housing markets may have different equilibrium rents), then the control is null and void. But if the rent is set at a level below the equilibrium rent, it will necessarily lead to a situation of excess demand or shortage. In a free market, prices (here, rents) would rise automatically filling the gap between the demand and the supply. But rent controls prevent prices from rising up to the equilibrium level and thus, alternative rationing mechanisms such as black and uncontrolled markets evolve.

A raging debate has been going on over the years over the pros and cons of rent control. While the proponents of rent control laws suggest that they prevent landlords from charging exorbitant rents and evicting tenants at will, the opponents suggest that rent control laws, by distorting incentives, lead to deterioration of existing housing stock, increased pullout of apartments from the rental housing market and thus reduced overall supply.

Murphy’s law of Economic Policy states that “Economists have the least influence on policy where they know the most and are most agreed; they have the most influence on policy where they know the least and disagree most vehemently”.¹ While most economists agree that rent controls are bad², nothing of note has been done towards deregulating rents, especially in India. Also, the sheer diversity of rent control laws existing in various states and countries, coupled with phenomenal economic diversity makes it very difficult to generalize the argument across borders, and thus makes the task of policy makers that much more difficult.

A 1986 U.N. study estimated that about 42 percent of the world’s urban dwellers were renters. It was not known how many of those 150 million households lived under rent control regimes, but preliminary research suggested that the proportion is as high as 30 percent.These numbers can reasonably be expected to have increased with the passage of time. Thus, the motivation of a project on rent control is clear and needs little elaboration.