Question

When cities pass laws limiting the rent landlords can charge on apartments, the laws usually apply to existing buildings and exempt any buildings not yet built. Advocates of rent control argue that this exemption ensures that rent control does not discourage the construction of new housing. Evaluate this argument in light of the time-inconsistency problem.

Answer 1

This situation represents an example of the time-inconsistency problem because the policymakers are likely to change their minds in the future, and either impose rent control to new housing as well, or to abolish all rent control laws.

In the first situation, the policymakers would be swayed by those arguing against the policy exception for new housing, while in the latter, the policymakers would simply find out that the policy is ineffective.