Question

During World War II, New York City instituted rent-control laws limiting the maximum amount that could be charged to renters. What was the likely result of this action? Assume the market was in equilibrium before the rent controls were passed, and the rent controls are binding.

Answer 1

The effect of rent controls is less housing, and higher prices of the existing housing.

Step-by-step explanation:

This is because binding rent controls do not allow prices to reach equilibrium, and this causes a difference between supply and demand.

Supply stays low, and does not meet demand, creating a shortage. The shortage causes both more scarcity of housing, and higher prices for existing houses, because demand is much higher than supply.

I will provide an image below that illustrates the effect.