INTRODUCTION

Imagine that you've just graduated from college and have been offered a position with a firm in New York City. You can't wait to start living in your own apartment. Your Aunt Bernice, who lives in Brooklyn Heights, has offered you a place to stay while you look for a place to begin living on your own.

TASK

In this lesson you will plot a data series onto a bar chart, and then read and interpret information from a bar chart. You will also predict how absence or presence of rent-controlled units impacts the cost of non-regulated housing, identify shadow markets, predict how owners of non-regulated housing will vote on rent-control referendums, and describe effects of price ceilings.

PROCESS

New York

It's Sunday morning, and Aunt Bernice offers you the obituaries section of the Times. "Here!" she says. "This is the best place to start searching for an apartment."

"Excuse me, Aunt Bernice. I think you meant to hand me the classifieds section."

"No. The quantity of rent-controlled apartments people demand these days is much higher than the quantity currently available. There is a shortage. Since landlords aren't able ration out their supply of rental units by adjusting rates above a certain price, units are rationed on a first-come, first-served basis. In some instances, you must pay an additional fee for the privilege of renting. I suggest you start reading through the obituaries and make a list of newly vacated apartments… before the apartments are listed with an agency or in the newspaper."

Hearing Aunt Bernice's good advice, you're reminded of the day your professor in your Economics 101 course discussed Price Ceilings.

"You do use this stuff in real life," you muse.

You're curious about what residents in areas like New York and San Francisco think about rent control. Surely they understand the allocative inefficiencies of an arbitrarily applied price ceiling. In fact, any time price ceilings are set: utilities, football tickets, parking, etc. -- there's bound to be some allocative inefficiencies. You conduct a search on the Web, and identify a couple of sites.

Here's a page from The Library of Economics and Liberty that summarizes the arguments for Rent Control .

This page at CNN Interactive named Emotions High as New York Rent Control Deadline Nears summarizes arguments for and against rent control.

1. Make a list of who wins and who loses under rent control.

2. What happens to all of the dissatisfied apartment-seekers? Make a list of alternative rationing devices.

3. How do rent controls affect the following?

    1. Amount of new rental property
    2. Quality of rental property
    3. Age of population

4. How would you predict residents of rent-controlled units would vote on a referendum to repeal rent-control laws?

The emergence and development of alternative rationing devices to a price-controlled market is called a shadow market. Shadow markets serve as a safety valve for excess demand. The equilibrium prices in shadow markets are often higher than in non-regulated markets.

1. Provide some examples of shadow market housing.

Let's take a look at some data on apartment advertisements from two markets, New York and Philadelphia, to try to find evidence of shadow markets.

2. Plot each data series below in a histogram, or bar chart.

New York, Apartment Vacancies and Rental Rates, 1997 (1)

Monthly rent

Number of units available

$251-300

16

301-350

15

351-400

51

401-450

15

451-500

49

501-550

48

551-600

68

601-650

80

651-700

81

701-750

90

751-800

85

801-850

101

851-900

110

901-950

75

951-1000

50

1051-1100

60

1101-1150

49

1151-1200

80

1201-1250

51

1251-1300

80

1301-1350

70

1351-1400

60

1401-1450

48

1451-1500

60

1501-1550

51

1551-1600

51

1601-1650

54

1651-1700

54

1701-1750

62

1751-1800

62

1801-1851

40

1951-1900

40

1901-1950

40

1951-2000

40

 

Philadelphia Rental Market (non-regulated) (1)

Monthly rent

Number of units available

$251-300

2

301-350

18

351-400

40

401-450

75

451-500

68

501-550

56

551-600

60

601-650

38

651-700

37

701-750

20

751-800

12

801-850

13

851-900

3

901-950

8

951-1000

4

1001-1050

8

1051-1100

1

1101-1150

3

1151-1200

1

1201-1250

2

1251-1300

1

1301-1350

1

1351-1400

1

1401-1450

1

1451-1500

1

1501-1550

1

1551-1600

1

1601-1650

1

1651-1700

0

1701-1750

2

1751-1800

1

1801-1851

1

 

Once you have your data in bar chart format, take a look at the shape of the distribution of apartment prices.

3. What's the difference between the New York rental market and the Philadelphia rental market?

4. What do you predict would happen to the distribution of apartment prices if rent-control were repealed in New York?

Suppose you are seeking housing in New York City and have been unable to locate an apartment. Since you are a prudent saver and investor, you have some money saved for a down payment for a condominium. You are aware of a forthcoming referendum to repeal rent-control laws, and you believe that passage is imminent.

1. What do you expect will happen to the value of the condominium you are purchasing approximately one year from now?

2. Your mortgage lender is also aware of the impending change in the housing market. How would you expect him or her to hedge against the change?


(1) Data based on advertisements in Sunday editions of largest papers in each city during April 1997. See Policy Analysis: How Rent Control Drives Out Affordable Housing for complete description.

Additional funding for this site was provided by the Mortgage Bankers Association of America.