The cost of renting property in many parts of the UK continues to rise - would rent controls make any difference? A Unit 1 economics revision presentation.

1. AS Micro – Autumn 2013
Housing Rent Controls

2. The Rising Cost of Renting

3. Renting has become more expensive
Region
Average Rent (Sept
2012, £s per week)
London
£1,092
South West
£638
Yorkshire
£542
North West
£594
Wales
£556
South East
£776
England and Wales
£741

4. Maximum rents – rising demand
Rent per
month (£)
Rental Market with a Maximum Rent
Supply 1
P1
Demand 1
O
Q1
Quantity of rented property
With the help of an appropriate
diagram show how the
introduction
of a maximum rent might affect
the market for rental properties
1. Define a maximum rent
2. Explain where a maximum
price must be to change the
free-market equilibrium price
3. Use a clear supply and
demand diagram to help
4. Include some evaluation

5. Maximum rents – rising demand
Rent per
month (£)
Rental Market with a Maximum Rent
Supply 1
P1
ceiling
P2
Demand 1
O
Q1
Quantity of rented property
With the help of an appropriate
diagram show how the
introduction
of a maximum rent might affect
the market for rental properties
1. Max rent is a price ceiling
2. Must be set below normal
free market equilibrium
3. In diagram – set at rent P2

6. Maximum rents – rising demand
Rent per
month (£)
Rental Market with a Maximum Rent
Supply 1
P1
ceiling
P2
Demand 1
O
Q3
Q1
Q2
Quantity of rented property
With the help of an appropriate
diagram show how the
introduction
of a maximum rent might affect
the market for rental properties
1. Max rent is a price ceiling
2. Must be set below normal
free market equilibrium
3. In diagram – set at rent P2
4. P2 (ceteris paribus) creates an
excess demand or shortage =
Q3-Q2

7. Maximum rents – rising demand
Rent per
month (£)
Rental Market with a Maximum Rent
Supply 1
P3
P1
ceiling
P2
Demand 1
O
Q3
Q1
Q2
Quantity of rented property
With the help of an appropriate
diagram show how the
introduction
of a maximum rent might affect
the market for rental properties
1. Max rent is a price ceiling
2. Must be set below normal
free market equilibrium
3. In diagram – set at rent P2
4. P2 (ceteris paribus) creates an
excess demand or shortage =
Q3-Q2
5. Shortage may lead to a
shadow market developing –
some people willing to pay P3

8. Application
Analysis
Evaluation
Good application opens the door to
good analysis and good evaluation

9. Examiners like answers that make
connections

10. Examiners reward
answers that provide
chains of
reasoning

11. These are good connective phrases
by contrast…
therefore…
this might
mean…
A consequence of
this might be …
this is because
on the other
hand…

12. Building the Case for Rent Controls
On grounds of equity
• High rents hit low income families
• Affordable renting will reduce poverty
On grounds of efficiency
• Affordable rents improves labour mobility
• Encourages smaller homes to be built
Targets monopolistic landlords
• Exploiting the consumer / low price elasticity
• Will free up properties for the government to buy

13. Building the Case for Rent Controls
On grounds of equity
• High rents hit low income families
• Affordable renting will reduce poverty
On grounds of efficiency
• Affordable rents improves labour mobility
• Encourages smaller homes to be built
Targets monopolistic landlords
• Exploiting the consumer / low price elasticity
• Will free up properties for the government to buy

14. Building the Case for Rent Controls
On grounds of equity
• High rents hit low income families
• Affordable renting will reduce poverty
On grounds of efficiency
• Affordable rents improves labour mobility
• Encourages smaller homes to be built
Targets monopolistic landlords
• Exploiting the consumer / low price elasticity
• Will free up properties for the government to buy

15. Please use BIG DIAGRAMS
– large, clear diagrams are
easier to mark and credit!

16. Counter-Arguments
Rent caps causes supply contraction
• Less incentive to build or convert homes
• Lower spend on property maintenance
Creates incentive for black market
• Landlords may find other ways to get money
• May worsen tenancy security
Rent cap doesn’t tackle bigger issue
• Need to build more homes
• Other policies might be more effective

17. Counter-Arguments
Rent caps causes supply contraction
• Less incentive to build or convert homes
• Lower spend on property maintenance
Creates incentive for black market
• Landlords may find other ways to get money
• May worsen tenancy security
Rent cap doesn’t tackle bigger issue
• Need to build more homes
• Other policies might be more effective

18. Some Counter-Arguments
Rent caps causes supply contraction
• Less incentive to build or convert homes
• Lower spend on property maintenance
Creates incentive for black market
• Landlords may find other ways to get money
• May worsen tenancy security
Rent cap doesn’t tackle bigger issue
• Need to build more homes
• Other policies might be more effective

19. Wider Points / Issues
Landlords
Tenants
Will rent caps
change
behaviour?
Which
tenants will
be affected?
What choices
do they have?
What rented
housing will
be available ?

20. Maximum rents – rising demand
Rent per
month (£)
Rental Market with a Maximum Rent
Supply 1
P3
Evaluating possible effects on
market for rental properties
P1
ceiling
P2
O
With the help of an appropriate
diagram show how the
introduction
of a maximum rent might affect
the market for rental properties
Q3
1. Extent of contraction in rental
housing supply is uncertain
Demand 1
2. Will there be a long run
decline in supply?
3. Possible reduction in quality
of rental housing available
Q1
Q2
4. How will max rent respond to
shifts in demand?
Quantity of rented property

21. Maximum rents – rising demand
Rent per
month (£)
Rental Market with a Maximum Rent
Supply 1
P3
P1
ceiling
P2
Demand 1
O
Q1
Q2
Quantity of rented property

22. Evaluate the case for and the case against the
introduction of maximum rents in the market for
rented properties in the UK

23. Evaluate the case for and the case against the
introduction of maximum rents in the market for
rented properties in the UK
Bigger picture – long term shortage of available rented property
Efficiency – does a price ceiling improve the market outcome?
Equality – is a max rent equitable - helping those in most need?
Scope – how low would the ceiling be? National? Regional?
Time – long term effects of holding down market rents
Effectiveness – unintended consequences? Better alternatives?
Prioritise arguments – what is your main argument and why?
Scale – Significance – wider importance of the rented sector

24. Improving rented housing supply

25. Improving rented housing supply
Relaxation
of planning
controls
Tax
incentives
for “build
to rent”
Release of
surplus
land
Incentives
for building
innovation
Build more
social
housing

26. Tutor2u
Keep up-to-date with economics,
resources, quizzes and
worksheets for your economics
course.

27. Get help for unit 1 from
fellow students, teachers
and tutor2u on Twitter:
#econ1
@tutor2u_econ
26/11/2013 09:32:39