...Capstone Paper: Rent Ceilings in New York City Rent control was introduced in New York City after World War I. “Rent-controlled tenants live in buildings built before 1947 and have lived there continuously since 1971. They tend to be seniors on fixed incomes” (Thorbourne, 2015, para 1). City officials believed that the rapid rise in demand for rental units would drive up rent prices therefore price ceilings were instituted. This created a shortage in supply because it was not profitable for builders to continue construction where rent was regulated. Furthermore, a tenant is legally allowed to stay until they died or the agreement could be passed to a cohabitant that resided there for at least two years (Mceachern, 2014, p. 86). This causes an issue for landlords in the sense that they are not remaining profitable because rent controlled prices are dramatically lower than the free market. Landlords often take extreme measures in trying to catch tenants violating their lease so that they can terminate the binding agreement. By terminating the lease the landlord may not be bound by rent control once the tenant vacates. The below paragraphs will discuss the following questions associated when a price ceiling is imposed below the equilibrium level: 1. What happens to the quantity and quality of housing available? 2. What happens to the quality of housing and why? 3. Who benefits and loses from rent control? 4. How do landlords of rent-controlled apartments try to get tenants...
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...This essay will critically discuss how price ceilings and floors could possibly lead to economic inefficiency causing surpluses or shortages in relation to graphs and the real world case study. Firstly, price ceilings and price floors are basic aspects of our economy. Government enacted laws used to prevent suppliers from establishing prices of resources higher than supposed to be are known as price ceilings. Price floors are minimum pricing rates that can be charged for a particular good or service. Price controls such as these two are used to maintain affordable lifestyles and to protect consumers from suffering from unfair inflation. But however, if not executed correctly, price controls become completely ineffective. In order for a price ceiling to be effective price ceilings must be set below the natural market equilibrium but this in return becomes a problem the outcome of that would result in either excess in demand or a shortage in supply (Taylor 2006). Producers will not produce as much at a lower pricing rate, while consumers will continue to demand more because of the good being made more affordable; demand will exceed the supply. But still if the demand curve is relatively elastic then the net effect to consumer surplus will be positive. Producers are definitely harmed, as their surplus is doubly hit with a reduction in the number of firms that are willing to take the lower pricing rates. Resulting shortages of goods or services can lead to consumers having to line...
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...1. Some tenants would support rent control laws because they could be making a good amount of money and live in a very cheap apartment. New York city is one of the priciest places to live and people making above average salaries a year would be in favor of renting out these cheap apartments. Not all of the tenants gain from rent control laws because they could be making a low salary every year and not have access to these apartments because wealthier people are occupying them for longer and have no incentive to ever move. 2. A deadweight loss in this situation is caused by the price ceilings imposed by the government, since there is less incentive for people to produce these apartments due to minimized profits from price ceilings, and there is an increasing demand for these cheap apartments a deadweight loss is created. 3. NYC rent control is in place to try and help those with smaller incomes find affordable places to live and below market rents are those rates imposed to help them and these rents are the going rate for apartments under the price ceiling. 4. Rent control increases the consumer surplus in New York city while the producer surplus is lessened. 5. There is less incentive to apartment builders to construct these apartments due to the set amount of profit that they can make. Rent control takes out the aspect of a possible bidding war that a landlord can set between two perspertive tenants. Also the living conditions of the apartments are ignored...
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...Executive summary The concept of this report is about marketing intervention, which is the price ceiling and price floors. Price ceiling is actually set below the equilibrium price by lowering the price of the goods so that consumers can be able to afford the goods, then price floors which is set above the equilibrium price by increasing the price of some goods in order to protect the interest of some certain producers, and also to see the efficiency and inefficiency of both the price ceiling and price floors. Efficiency which is the economics allocating there resources in a good manner for example government rent control policy and inefficiency, is when the resources are not proper allocated an its example which is the black market and then some graphs that represent the price ceiling and price floors with their explanations and then lastly the real world example of price ceiling and evaluating the effective policy. Price ceiling and price floor are both price controls and also for government to interfere in the free market that changes the market equilibrium price. Price ceiling basically happens when the government puts a legal limits on how high a product price can be and it also disallow prices to exceed a certain maximum that causes shortages in order to be affordable by the consumers, there will be a shortage of goods when ever the price is set below the market price, in this situation demand will be higher or supply will be shortage because consumers will be demanding...
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...Rent Control by Walter Block New York State legislators defend the War Emergency Tenant Protection Act—also known as rent control—as a way of protecting tenants from war-related housing shortages. The war referred to in the law is not the 2003 war in Iraq, however, or the Vietnam War; it is World War II. That is when rent control started in New York City. Of course, war has very little to do with apartment shortages. On the contrary, the shortage is created by rent control, the supposed solution. Gotham is far from the only city to have embraced rent control. Many others across the United States have succumbed to the blandishments of this legislative “fix.” Rent control, like all other government-mandated price controls, is a law placing a maximum price, or a “rent ceiling,” on what landlords may charge tenants. If it is to have any effect, the rent level must be set at a rate below that which would otherwise have prevailed. (An enactment prohibiting apartment rents from exceeding, say, $100,000 per month would have no effect since no one would pay that amount in any case.) But if rents are established at less than their equilibrium levels, the quantity demanded will necessarily exceed the amount supplied, and rent control will lead to a shortage of dwelling spaces. In a competitive market and absent controls on prices, if the amount of a commodity or service demanded is larger than the amount supplied, prices rise to eliminate the shortage (by both bringing forth new supply...
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...New York Apartment Price Controls – An Article Review Rent controls began in New York City in November 1943, when rent for all units in the city were frozen at their March 1943 levels as part of the U.S. Emergency Price Act of 1942 (Gyourko & Linneman, 1990). The price controls were altered by Federal Housing and Rent act of 1947, exempting units built after February 1947 from all future controls; New York City continued to price control rent on virtually all apartments constructed prior to 1947 (Gyourko & Linneman, 1990). Only about 1.8% of New Yorkers actually enjoy the securities of rent controlled apartments, 45.4% do live in rent stabilized accommodations where landlords are prohibited from increasing rates by a certain percentage each year (Pittman, 2013). The debate over rent control has been a long controversy; many argue that rent control is far too restrictive and that it makes apartment hunting almost impossible for many (due to the low supply in “affordable apartments”). The price ceilings set in place have been beneficial in terms of making living more affordable, but it also has created other problems. Tenants under controlled rent often stay longer, even it is deemed to be unsuitable for their living situations (ex: expansion in family) simply because it is affordable. Because tenants stay longer, it makes vacancy at certain controlled prices much harder for those who are living in unregulated accommodations (Pittman, 2013). As displayed...
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...demand of 2 bedroom rental apartments in Atlantis. The three subjects demand curve, the supply curve, and equilibrium are explained. The impact of a price ceiling on quantity demanded and quantity supplied of two bedroom rental apartments are discussed. The closest substitute to a two bedroom apartment provided by GoodLife is a detached rental home provided by Oakridge Builders. First, the appropriate rental rate had to be chosen to bring down the vacancy rate from 28% to 15% while maximize revenue. Second, if leasing out all 2,500 apartments, the rental rate had to be decided to profitable. Though GoodLife is the monopoly in the market. The company has been able to fix the market rental rate at the company’s discretion. Simply by lowering the rental rate, it increases the quantity demanded. More quantity is demanded at a lower price. When rental rates are reduced there will be more potential tenants willing to rent apartments leading to a lower vacancy rate. As the rental rate is lowered, revenue initially increases, reaches a maximum at a particular rental rate and quantity demanded, and then decreases. There was 2,500 apartments available to lease. Current rental rate for lease was $1,100. The suggestion was to assess the possibility of leasing out all the apartments at the current renal rate. It would not be profitable to rent out all apartments at current rental rate. The supply curve for a product is the imaginary line at a point in time that tells you the...
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...Supply and Demand Simulation Crystal Carter ECO/365 August 20, 2013 Esperance Namugabo Supply and Demand Simulation Good Life Management is a property management firm with a monopoly hold of apartment complexes in the small city of Atlantis. The only like substitute in the city is Oakridge Builders that provides detached homes to its renting customers. This simulation covers the supply and demand concepts that affect, the rental rates within this constant evolving small city. When the Company Lintech moved to Atlantis the city seen an increase in the population that increased the demand by consumers for apartments but not the firms supply. This shift caused the demand curve, and the relationship between the price and quantity demanded to shift right because more apartments were demanded than what the quantity supplied at the prievious equilibrium. This created a shortage within the market because more was demanded than what were being supplied. The demand-generated increases in the rental rates, quantity demanded decreased, an increase in supply to meet the new prices, and the shortage reduction decreased. The firm proceeded with these adjustments until there was no longer a shortage or surplus in the market. The rent and number of apartments remained unchanged as the demand was also frozen. Once consumers began choosing condominiums instead of the apartments Good Life went along to appease their tenants. The demand for condominiums prompted the firm to convert...
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...workers. There are also city laws setting price ceilings for housing rents. a. Why are there laws setting minimum wages for workers and maximum rents for housing? The laws set for minimum wages protect unskilled workers from exploitation (Gorman, 2008) and provide them with a “living wage” (Livingston, 2011). The idea of a minimum wage was created in Australia and New Zealand to reduce poverty (Gorman, 2008). Maximum rents for housing was created to protect tenants from increased monthly rent cost by landlords (Block, 2008). Formally, rent control is known as the Emergency Tenant Protection Act; which was created during World War II in New York City (Block, 2008). b. Why are there no laws setting maximum wages for workers or minimum rents for housing? Setting a maximum wage law will not only hinder the economy but hurt high wage workers purchasing power. When the economy is booming, most workers receive raises, however if there is a cap placed on the wages, workers would max out their earnings. If workers production levels in one hour is 10 times what they receive in compensation, the only party benefiting in the transactions in the company. Maximum wages would also hurt the market for luxury items. Workers may be reluctant in purchasing certain luxury items because once they have reach there max wage; there is no room for wage increases. A price control for rent was created in an effort to aid low-income families. However, placing a minimum rent would directly affect...
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...workers. There are also city laws setting price ceilings for housing rents. a. Why are there laws setting minimum wages for workers and maximum rents for housing? The laws set for minimum wages protect unskilled workers from exploitation (Gorman, 2008) and provide them with a “living wage” (Livingston, 2011). The idea of a minimum wage was created in Australia and New Zealand to reduce poverty (Gorman, 2008). Maximum rents for housing was created to protect tenants from increased monthly rent cost by landlords (Block, 2008). Formally, rent control is known as the Emergency Tenant Protection Act; which was created during World War II in New York City (Block, 2008). b. Why are there no laws setting maximum wages for workers or minimum rents for housing? Setting a maximum wage law will not only hinder the economy but hurt high wage workers purchasing power. When the economy is booming, most workers receive raises, however if there is a cap placed on the wages, workers would max out their earnings. If workers production levels in one hour is 10 times what they receive in compensation, the only party benefiting in the transactions in the company. Maximum wages would also hurt the market for luxury items. Workers may be reluctant in purchasing certain luxury items because once they have reach there max wage; there is no room for wage increases. A price control for rent was created in an effort to aid low-income families. However, placing a minimum rent would directly affect...
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...company that rents at seven certain complexes. As Lintech, a new company moves to Atlantis an increase in the demand for housing causes some change in both prices and supply. A good example of one principle of microeconomics in the simulation is the concept of reaching equilibrium, where supply and demand (opposing forces) cancel each other out (Colander, 2010). When Lintech moves to Atlantis there is a sharp increase in which a surplus on the market caused a downward pressure on the price. At that time there was no shortage or surplus because equilibrium was reached. Another principle that demonstrates microeconomics is that of opportunity costs. During the simulation Lintech, a large company moves in to Atlantis which causes the demand for rentals to increase. Opportunity cost is essentially what you give up to attain what you desire (Colander, 2010). The concept of employees of Lintech needing to travel to and from Atlantis and giving up other things in order to either accommodate the travel time and expense or accommodate moving to the city of Atlantis to be closer to work brings to mind opportunity cost. A principle of macroeconomics that is shown in the simulation is when the government imposes the price ceiling. This is because macroeconomics involves the study of economy as a whole and more so focuses on looking from the top down whereas microeconomics focuses from the study of individual choice (Colander, 2010). A price ceiling is imposed on rent because the quality...
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...controls the seven apartment complexes in the city of Atlantis. In the nine-year period in the simulation the housing market has increased and decreased because of businesses moving into the area bringing an increase in job market, the change in company expectations and consumer preferences, and the policy changes implemented by the government (University of Phoenix website, 2013). Identifying the two microeconomic and two macroeconomic principles present in the simulation and to explain why these principles are categorized as microeconomic or macroeconomic. The supply and demand was affected by decreasing the rent to lower the vacancy percentage and maximize revenue for the company. This moved is considered a temporary fix on a month-to-month basis and a good example of microeconomics. Another example of microeconomics is when the new company came into town and caused an increased in the population along an increased in the job market. The population and job increase suggest they increase rental rates in response to the increase in demand. An example of macroeconomics is the survey showing that individuals working in Atlantis are living in neighboring cities because of the cost of rent is less. Another example of macroeconomics is when the government steps in and puts a ceiling of $1550 on monthly rent for two-bedroom apartments so that middle-class families can afford to live in the city in which they work. This caused the company to rent only a portion of their apartments to make...
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...to attract favorable offers from prospective buyers. This is why it is a microeconomic concept. * A monopoly is an enterprise that is the only seller of a good or service. In the absence of government intervention, a monopoly is free to set any price it chooses and will usually set the price that yields the largest possible profit. Just being a monopoly need not make an enterprise more profitable than other enterprises that face competition: the market may be so small that it barely supports one enterprise (University of Phoenix, 2010). * A price ceiling is a legally mandated maximum price. The purpose of a price ceiling is to keep the price of a good below the market equilibrium price. Rent controls and regulated gasoline prices during wartime and the energy crisis of the 1970s are examples of price ceilings. This was installed by the Atlantis government. This is an example of macroeconomics. An effective price ceiling results in a shortage of a...
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...Alex. Martinez Capella University October 5th 2013 Chapter 1: Problem 5, a through d, on page 21 Chapter 3: Problem 7, a through d, on page 68 Abstract This assignment explores production possibilities principles in a fixed and variable economy. This assignment also explores market equilibrium and how price ceilings and floors can affect that balance. Production possibilities table and curve for consumer goods (automobiles) and capital goods (forklifts). Chapter 1: Problem 5, a through d. | Production Alternative | Type of Production | A | B | C | D | E | Automobiles | 0 | 2 | 4 | 6 | 8 | Forklifts | 30 | 27 | 21 | 12 | 0 | The assumptions in the above table and curve are based on two products that can be produced with a specific set of resources, fixed technology and also assuming full employment (McConnell, Brue & Flynn, 2012). If the economy is at point C, the economy is producing 4 automobiles and 21 forklifts. The cost of producing one more automobile would be 5 forklifts. If we increase the automobiles from 4 to 5, the forklifts decrease from 21 to 16, a loss of 5. If the economy is at point C on the production possibilities graph and the forklifts increase by 1 quantity, the cost would be .33 automobiles. If we increase the forklifts from 21 to 22, the automobiles decrease from 4 to 3.66. In this example, the law of increasing opportunity cost is characterized by the shape of the curve. The curve is bowed out from the origin...
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...Land Use and Development Trends 8 Grand Central Terminal Today 11 External Market Forces 12 Government Intervention 14 Employment 15 Subject Properties 18 Lincoln Building 18 JP Morgan Chase 20 Competitive Position 21 Summary & Trends 25 Projections 26 I. Grand Central Office Market Analysis The New York City Office Market is comprised of three submarkets, Downtown, Midtown and Midtown South. The Midtown submarket in the largest Central Business District in the United States; it is the submarket that the Grand Central office market is located and upon which this analysis is based. Other neighborhoods within the Midtown submarket include: Columbus Circle, Penn Plaza/Garment District, Plaza District and Times Square (Kindly refer to Appendix Nos.1 & 2). The Grand Central office market straddles in both Community Board #5 and Community Board # 6, the planning bodies of the City that overseas development and other municipal related concerns. According to the Grand Central Partnership, the Business Improvement District, the boundaries of Grand Central area can extend as far East as Second Avenue and as far West as Fifth Avenue. On the Northside the district extends to 54th street and as far South as 35th street....
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