A CONSIDERATION OF SOME OF THE SHORT RUN EFFECTS OF RENT DECONTROL

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THE UNIVERSITY OF CHICAGO

/A CONSIDERATION OF SOME OF THE SHORT RUN EFFECTS OF RENT DECONTROL/

A DISSERTATION SUBMITTTED TO THE FACULTY OF THE DIVISION OF THE SOCIAL SCIENCES IN CANDIDACY FOR THE DEGREE OF MASTER OF ARTS DEPARTMENT OF ECONOMICS

BY v v’ GERALD T . O'MARA

n

CHICAGO, ILLINOIS JUNE, 1950

TABLE OF CONTENTS Page LIST OF T A B L E S.......................................................................................................H I C h a p te r I.

INTRODUCTION AND HISTORICAL BACKGROUND

. . . .

1

II.

THEORETICAL ANALYSIS OF RENT CONTROL ......................

8

III.

AN EXAMINATION OF THE EVIDENCE....................................

15

D a lla s H o u s to n Omaha S a le s P ric e s C o n c lu s io n APPENDIXES I.

II.

A DESCRIPTION OF THE RENT COMPONENT OF THE NICB "CONSUMERS' PRICE INDEXES FOR FIFTYSEVEN CITIES" ...............................................................

44

A DESCRIPTION OF THE RENT COMPONENT OF THE BLS "CONSUMERS' PRICE INDEX" .............................

47

11

LIST OF TABLES

T ab le 1.

Page The NICB I n d e x o f R e n ts f o r D a l l a s , T e x a s , 1 9 4 2 -

50

16

2.

C hanges I n R e s i d e n t i a l R e n t s f o r R e n t a l D w e l l i n g s w ith K itch en F a c i l i t i e s In th e D a lla s A re a , A p r i l 1 5 , t o November 1 5 , 1 9 4 9 .....................................................................18

3.

O c c u p ie d D w e llin g U n i t s by Type o f O ccupancy f o r t h e D a l l a s , T e x a s M e t r o p o l i t a n D i s t r i c t , 1 9 4 0 -4 7 • •

29

4.

The BLS I n d e x o f R e n ts f o r H o u s to n , T e x a s , 1 9 4 7 5 0 ..........................................................................................................................30

5.

C han ges I n R e s i d e n t i a l R e n t s f o r R e n t a l D w e l l i n g s w i t h K i t c h e n F a c i l i t i e s i n H o u s to n , T e x a s , A u g u s t 15» t o November 15* 1949 ...............................................................

32

O c c u p ie d D w e l l in g U n i t s by Type o f O ccupancy f o r H o u s to n , T e x a s , 1 9 4 0 - 4 6 ....................................................................

34

6. 7*

The NICB I n d e x o f R e n ts f o r Omaha, N e b r a s k a , 1 9 4 2 5 0 ..........................................................................................................................36

8.

C hanges i n R e s i d e n t i a l R e n t s f o r R e n t a l D w e l l i n g s w i t h K i t c h e n F a c i l i t i e s i n Omaha, N e b r a s k a , S e p te m b e r 1 5 , 1949 t o J a n u a r y 1 5 , 1950 ...................................................... 37

9.

O c c u p ie d D w e l l in g U n i t s by Type o f O ccupancy f o r Omaha, N e b r a s k a , 1 9 4 0 -4 6 ...............................................................

38

A d v e r t i s e m e n t s In t h e Omaha Sunday W orld H e r a l d t o L e t R e n t a l A c c o m m o d a t i o n s ................................................

40

10.

111

.

CHAPTER I

INTRODUCTION AND HISTORICAL BACKGROUND The H o u s in g a n d R e n t A c t o f 1949 was t h e f i r s t f e d e r a l r e n t c o n t r o l a c t u n d e r w h ic h s t a t e s o r m u n i c i p a l i t i e s c o u l d r e ­ move r e n t c o n t r o l s w i t h o u t t h e a u t h o r i z a t i o n o f t h e a d m i n i s t r a t o r of r e n t c o n tro ls .

U nder i t s p r o v i s i o n s , s e v e r a l s t a t e s a n d

m u n i c i p a l i t i e s rem oved r e n t c o n t r o l s , t h e r e b y p r o v i d i n g e v i d e n c e on a t l e a s t some o f t h e s h o r t r u n e f f e c t s o f r e m o v a l o f r e n t con­ tro ls

of th e p re s e n t v a r i e ty .

I t i s proposed to c o n s id e r in t h i s

p a p er th e s h o r t run e f f e c t s o f r e n t d e c o n tr o l in th e c i t i e s

of

D a l l a s , H o u s to n , a n d Omaha, a l l o f w h ic h w ere d e c o n t r o l l e d i n 1949.

A b r i e f a c c o u n t o f t h e m anner a n d sc o p e o f r e n t c o n t r o l t o

d a t e a n d an a n a l y s i s o f t h e e c o n o m ic e f f e c t s o f r e n t c o n t r o l p r e ­ cede th e p r e s e n t a t i o n o f d a ta f o r th e s e c i t i e s . C o n g re s s i n t r o d u c e d r e n t c o n t r o l w i t h t h e Em ergency P r i c e C o n t r o l A c t o f 1 9 4 2 , p a s s e d on J a n u a r y 3 0 , 1 9 4 2 .

The A c t made

p r o v i s i o n f o r t h e e s t a b l i s h m e n t o f a maximum r e n t d a t e by t h e O f f i c e o f P r i c e A d m i n i s t r a t i o n ; t h e r e n t s on s a i d d a t e t o b e t h e maximum l e g a l r e n t s . 1 U nder t h e A c t , t h e A d m i n i s t r a t o r was a u t h o r i z e d t o d e s i g ­ n a t e c e r t a i n a r e a s a s " d e f e n s e r e n t a l a r e a s " a n d t o recommend l o c a l ^ U .S . O f f i c e o f P r i c e A d m i n i s t r a t i o n , F i r s t Q u a r t e r l y R e p o r t ( W a s h in g to n : U .S . O f f i c e o f P r i c e A d m i n i s t r a t i o n , 1 9 4 2 ) , p . 51* 1

2 a c tio n f o r th e s t a b i l i z a t i o n or re d u c tio n of r e n t s w ith in th e se a reas.

I f I n v e s t i g a t i o n show ed t h a t w i t h i n 60 d a y s l o c a l a c t i o n

had f a i l e d t o s t a b i l i z e o r red u ce r e n t s in acco rd an ce w ith th e A d m i n i s t r a t o r ' s r e c o m m e n d a tio n , a maximum r e n t r e g u l a t i o n c o u l d b e I s s u e d a n d an a r e a r e n t d i r e c t o r a p p o i n t e d t o a d m i n i s t e r I t . 1 On March 2 , 1 9 4 2 , t h e OPA t o o k I t s f i r s t o f f i c i a l a c t i o n u n d e r t h e A c t . Twenty d e f e n s e r e n t a l a r e a s w e re d e s i g n a t e d a s s u b je c t to p o ss ib le re n t re g u la tio n .

On A p r i l 2 8 , 1 9 4 2 , OPA

d e s i g n a t e d a n a d d i t i o n a l 30 2 d e f e n s e r e n t a l a r e a s .

These a r e a s

c o n t a i n e d a p p r o x i m a t e l y 86 m i l l i o n p e o p l e , t h e v a s t m a j o r i t y o f th e u rb a n and s e m i- r u r a l p o p u la tio n o f th e U n ite d S t a t e s .

Though

n o one maximum r e n t d a t e was s e t , M arch 1 , 1942 was t h e d a t e s e t f o r f o u r - f i f t h s o f th e a r e a s f ro z e n d u r in g th e s p r in g o f 1 9 4 2 .2 On O c t o b e r 5» 1 9 4 2 , OPA d e s i g n a t e d t h e e n t i r e U n i t e d S t a t e s a d e f e n s e r e n t a l a r e a , 3 b u t c o n t r o l was n o t e x e r c i s e d I n a l l r e g i o n s — l a r g e p a r t s o f t h e c o u n t r y n e v e r h a d maximum r e n t r e g u l a t i o n s a p p lie d . The b a s i s f o r f e d e r a l r e n t c o n t r o l was t h e Maximum R en t R e g u l a t i o n I s s u e d by OPA w h ic h made p r o v i s i o n f o r (a ) t h e d e t e r ­ m i n a t i o n o f maximum l e g a l r e n t s ,

(b ) g r o u n d s an d p r o c e d u r e s f o r

a d j u s t i n g maximum r e n t s ( c ) m a i n t e n a n c e o f s e r v i c e s a l r e a d y p r o ­ v id e d ,

(d) r e s t r a i n t o f " u n w a r r a n t e d e v i c t i o n s " , a n d (e )

re g is tra ­

tio n of la n d lo rd s .^ 1I b l d . , p . 5 2 .

2I b l d . . p . 53.

^F e d e ra l R e g is te r 7 :7 9 4 2 , O c to b er 7 , 1942. L

OPA, S e c o n d Q u a r t e r l y R e p o r t ( W a s h in g to n : OPA, 1 9 4 2 ) , p . 5 9 .

3 The R e g u l a t i o n e s t a b l i s h e d t h e r e n t a s o f t h e maximum r e n t d a t e a s t h e maximum r e n t f o r u n i t s t h a t w ere r e n t e d on t h a t d a t e ; h o w e v e r , t h e r e w e re c e r t a i n g r o u n d s f o r o b t a i n i n g a n a d j u s t ­ m ent o f t h i s maximum r e n t .

I n g e n e r a l t h e l a n d l o r d m ig h t p e t i t i o n

f o r a d j u s t m e n t I f (1) a m a jo r c a p i t a l Im p ro v em en t was made,

(2)

a s u b s t a n t i a l In c r e a s e In s e r v i c e s , f u r n i t u r e , f u r n i s h i n g s ,

or

e q u ip m e n t p r o v i d e d was made,

(3 )

t h e r e n t on t h e maximum r e n t

d a t e was s u b s t a n t i a l l y lo w e r t h a n r e n t s p r e v a i l i n g f o r c o m p a ra b le a c c o m m o d a tio n s ,

(4) on t h e maximum r e n t d a t e t h e r e was a w r i t t e n

l e a s e In f o r c e r e q u i r i n g a r e n t s u b s t a n t i a l l y lo w e r th a n t h a t p r e v a i l i n g f o r c o m p a r a b le a c c o m m o d a tio n s ,

(5) t h e r e was a v a r i a b l e

le a s e p ro v id in g f o r h ig h e r r e n ts a t o th e r p e rio d s ,

o r (6) du e t o

s e a s o n a l f a c t o r s t h e r e n t was s u b s t a n t i a l l y lo w e r on t h e maximum r e n t d a te th a n a t o t h e r tim e s In th e y e a r . 1 New h o u s i n g com ing o n t o t h e m a r k e t h a d a s maximum r e n t , t h e f i r s t r e n t c h a r g e d f o r t h e a c c o m m o d a tio n a f t e r c o m p l e t i o n o r change.

H ow ever, t h e A d m i n i s t r a t o r m ig h t o r d e r a d e c r e a s e t o

b rin g th e r e n t to th e le v e l o f r e n t s p r e v a ilin g in th e d e fen se r e n t a l a r e a on t h e maximum r e n t d a t e f o r c o m p a r a b le a c c o m m o d a t i o n s .2 S e p a r a t e r e g u l a t i o n s w e re draw n u p f o r h o t e l s a n d ro o m in g h o u s e s (a c l a s s i f i c a t i o n t h a t i n c l u d e d a u t o c o u r t s , t o u r i s t c a b i n s , and b o a rd in g h o u s e s ).

C om m ercial b u i l d i n g s

h o u se s, o f f i c e s , and f a c t o r i e s )

w e re n o t I n c l u d e d u n d e r t h e Maximum

R e n t R e g u l a t i o n s o f t h e OPA. 3 ^•I b l d . . p p . 6 0 -1 2I b l d .

( i . e . s t o r e s , w are­

3I b l d .

4 R e n t c o n t r o l u n d e r t h e Em ergency P r i c e C o n t r o l A c t o f 1942 c o n t i n u e d from p a s s a g e o f t h e A c t I n 1942 t o J u n e 3 0 , 19471 ( w i t h t h e e x c e p t i o n o f a b r i e f l a p s e from J u n e 30 t o J u l y 25* 1 9 4 6 ) • The e f f e c t i v e n e s s o f t h e c o n t r o l o f c o n t r a c t r e n t s seem s t o h a v e been g e n e r a l .

The r e n t com ponent o f t h e B u re a u o f L a b o r S t a t i s t i c s

C o n su m e rs' P r i c e I n d e x r o s e fro m an a v e r a g e o f 1 0 6 . 2 I n 1941 t o 1 0 8 .8 I n J a n u a r y 1947 w h i l e f o r t h i s p e r i o d t h e C o n su m e rs' P r i c e I n d e x r o s e fro m 1 0 5 .2 t o 153«3 *^

D u rin g t h e p e r i o d o f c o n t r o l

t h r o u g h D ecem ber 31* 1 9 4 6 , t h e OPA r e c o r d e d o n ly 9 8 7 ,8 0 7 u p w ard a d j u s t m e n t s o f maximum r e n t s . T h i s

f i g u r e I s o n ly a s m a l l f r a c ­

t i o n o f t h e 1940 c e n s u s f i g u r e f o r t h e r e n t a l h o u s i n g s u p p l y (w h ic h I s h e a v i l y c o n c e n t r a t e d I n t h e u r b a n c e n t e r s a n d h e n c e a l ­ m o st c o m p l e t e l y c o n t r o l l e d ) . E a r l y I n 1947 c o n t r o l s w e re e a s e d so m ew h at.

A f te r F ebru­

a r y 1 8 , 1 9 4 7 , o p e r a t o r s w e re a l l o w e d t o c h o o s e a n y two c o n s e c u t i v e y e a r s s i n c e 1938 a s t h e i r maximum r e n t b a s e I n s t e a d o f one maximum r e n t d a te a s b e fo re .

I f t h e i r n e t Income a s o f F e b r u a r y 1 8 , 1947

was l e s s t h a n i t was a t t h e tim e o f t h i s n e w ly a l l o w e d b a s e , t h e y ^ O r i g i n a l l y I t s t e r m i n a t i o n d a t e was " J u n e 3 0 , 1 9 4 3 " . On O c t o b e r 2 , 19 42 i t was am ended t o r e a d " J u n e 3 0 , 1 9 4 4 " . (S e c tio n 7 ( a ) o f t h e S t a b i l i z a t i o n A c t o f 1 9 4 2 , 56 S t a t . 7 3 7 . ) On Ju n e 30, 1944 I t was am ended t o r e a d " J u n e 3 0 , 1 9 4 5 " . ( S e c t i o n 101 o f t h e S t a b i l i z a t i o n E x t e n s i o n A c t o f 1 9 4 4 , 58 S t a t . 6 3 2 .) On J u n e 3 0 , 1945 I t was am ended t o r e a d " J u n e 3 0 , 1 9 4 6 " . (S e c tio n 1 of P u b lic Law 108 C 9 : |J •) On J u l y 25* 1946 I t was am ended t o r e a d " J u n e 3 0 , 194 7 • ( S e c t i o n 1 o f t h e P r i c e C o n t r o l E x t e n s i o n A c t o f 1 9 4 6 , P u b l i c Law 548 | J 9 s 2 •) OPA, P r i c e C o n t r o l a n d E x e c u t i v e O r d e r s a s Amended A u g u s t 1946 (W a s h in g to n : OPA, 1 9 4 6 .) ^M o n th ly L a b o r R e v ie w . F e b r u a r y 1 9 5 0 , p . 2 3 9 . ^OPA, T w e n t i e t h Q u a r t e r l y R e p o r t ( W a s h in g to n : P. 54.

OPA, 1 9 4 7 ) ,

5 w e re g r a n t e d r e n t I n c r e a s e s by OPA.1

On A p r i l 2 3 , 1947 t h e

p r e s id e n t t r a n s f e r r e d th e a d m in is tr a tio n of c o n tr o ls to th e O ffic e o f t h e H o u s in g E x p e d i t e r ( e f f e c t i v e a s o f May 4 , 1 9 4 7 ) . 2 R e n t c o n t r o l was c o n t i n u e d by t h e H o u s in g a n d R e n t A c t o f 1947 ( e n a c t e d J u n e 3 0 , 1947) w h ic h a l s o c o n t i n u e d a d m i n i s t r a ­ t i o n o f c o n t r o l s by OHE.

T h is a c t h a s b e e n p e r i o d i c a l l y amended

t o e x te n d th e p e rio d o f r e n t c o n t r o l . e x t e n d e d c o n t r o l s t o J u n e 30 , 1 9 5 0 .5

T he m o s t r e c e n t amendment The A c t o f 1947 i n c l u d e d

s e v e r a l p r o v i s i o n s w h ic h s u b s t a n t i a l l y m o d i f i e d t h e b a s i s o f r e n t c o n tro l.

A f i f t e e n p e r c e n t i n c r e a s e i n r e n t m ig h t be made i f

l a n d l o r d a n d t e n a n t v o l u n t a r i l y a g r e e d t o s u c h an I n c r e a s e i n a v a l i d w r i t t e n l e a s e w h ic h was e n t e r e d i n t o b e f o r e Decem ber 3 1 , 1947 a n d w h ic h e x p i r e d on o r a f t e r D ecem ber 3 1 , 1 9 4 8 ; t h i s p r o v i s i o n was l a t e r am ended t o i n c l u d e an y s u c h I n c r e a s e s made by w r i t t e n c o n ­ t r a c t b e f o r e D ecem ber 3 1 , 1948 a n d w h ic h e x p i r e d on o r a f t e r D ecem ber 3 1 , 1949*

H o t e l s , m o to r c o u r t s , t o u r i s t homes a n d

h o u s i n g a c c o m m o d a tio n s c r e a t e d a f t e r F e b r u a r y 1 , 1947 e i t h e r by new c o n s t r u c t i o n o r c o n v e r s i o n ( w i t h t h e e x c e p t i o n o f accommoda­ t io n s c re a te d w ith a s s is ta n c e o f a ll o c a t io n s o r p r i o r i t i e s g ra n te d 1 F e d e r a l R e g i s t e r 1 2 :1 1 4 3 * F e b r u a r y 19* 1 9 4 7 . 20PA, T w e n ty -S e c o n d Q u a r t e r l y R e p o r t ( W a s h in g to n : OPA, 1 9 4 7 ), p . 4 . ^The A c t o f 1947 e x t e n d e d r e n t c o n t r o l s t o “F e b r u a r y 29* 1 9 4 8 ” . I t was am ended on F e b r u a r y 2 7 , 1948 t o r e a d "M arch 3 1 , 1 9 4 8 "» ( P u b l i c Law 422 g 0 : | | . ) On M arch 3 0 , 1948 i t was am ended t o r e a d "M arch 3 1 , 1 9 4 9 . " ( P u b l i c Law 464 (80:21 . ) The 1949 H o u s in g a n d R e n t A c t am ended i t t o r e a d " J u n e 3 0 , 1 9 5 0 ." Commerce C l e a r i n g H o u se , F e d e r a l R e n t Law a n d R e g u l a t i o n — 1949 (C h icag o : CCH, 1 9 4 9 ) , p . 2 6 .

6 u n d e r P u b l i c Law 3 8 8 , 7 9 t h C o n g r e s s - - i . e . " v e t e r a n s h o u s i n g " ) w e re d e c o n t r o l l e d .

U n i t s w h ic h a t n o t i m e d u r i n g t h e p e r i o d

fro m F e b r u a r y 1 , 1945 t o J a n u a r y 31* 1947 w e re r e n t e d a s h o u s i n g w e re d e c o n t r o l l e d ; t h i s p r o v i s i o n was l a t e r am ended t o I n c l u d e a n y u n i t s n o t r e n t e d f o r any t w e n t y - f o u r m o n th s s i n c e F e b r u a r y 1 , 1 9 4 5 .1 The r e s u l t o f t h e s e p r o v i s i o n s was a n o t i c e a b l e I n c r e a s e In th e g e n e r a l l e v e l o f r e n t s .

The B u re a u o f L a b o r S t a t i s t i c s

r e n t I n d e x Jumped fro m 1 0 8 .8 I n J a n u a r y t o 1 1 5 . 4 I n D ecem ber o f 1 9 4 7 .2 The A c t o f 1947 a l s o c h a n g e d t h e p r o v i s i o n s f o r e n f o r c e ­ m ent o f r e n t c o n t r o l r e g u l a t i o n s .

The a u t h o r i t y t o b r i n g t r e b l e ­

damage a c t i o n s , t o a p p l y c r i m i n a l s a n c t i o n s , a n d t o r e g u l a t e e v i c t i o n s was t a k e n fro m OHE.

I n j u n c t i v e a c t i o n was t h e o n ly

s a n c t i o n t h a t c o u l d b e a p p l i e d by OHE a f t e r J u l y 1 , 1 9 4 7 .

The

H o u s in g E x p e d i t e r r e p o r t e d a s h a r p d e c r e a s e I n t h e a v e r a g e num ber o f t e n a n t c o m p l a i n t s f i l e d e a c h m o n th ; y e t I t was h i s o p i n i o n t h a t v i o l a t i o n s had I n c r e a s e d m a rk e d ly .

I t w o u ld seem t h a t w h i l e t e n a n t s

c o u ld b rin g s u i t f o r v i o l a t i o n o f r e n t c o n tr o l l e g i s l a t i o n ,

fear

o f e v i c t i o n made many l o a t h t o do s o . ^ • ^ I b l d . , p p . 26- 8 . ^ M o n th ly L a b o r R e v ie w . F e b r u a r y 1 9 5 0 , p . 239* ^ U .S . C o n g r e s s , S e n a t e , R e n t C o n t r o l L e g i s l a t i o n . H e a r i n g s b e f o r e a S u b c o m m itte e o f t h e C o m m ittee on B a n k in g a n d C u r r e n c y , U .S . S e n a t e , 8 l s t C o n g ., 1 s t S e s s . , on S . 4 3 4 , S . 6 0 0 , S . 8 8 8 , M arch 3 , 4 , 7 , 8 , 9* 1 0 , a n d 1 1 , 1949 ( W a s h in g to n : G o vernm ent P r i n t i n g O f f i c e , 1 9 4 9 )* PP« 3 1 - 2 .

7 The H o u s in g an d R e n t A c t o f 1949 made p r o v i s i o n f o r d e ­ c o n tro l of re n ts

(1 ) i n a n y com m unity by a l o c a l g o v e r n i n g body

i f i t was fo u n d t h a t a s h o r t a g e o f r e n t a l h o u s i n g n o l o n g e r e x i s t e d , (2) i n a n e n t i r e s t a t e o r a n y p a r t o f i t t h r o u g h p a s s a g e o f a law by t h e S t a t e l e g i s l a t u r e d e c l a r i n g f e d e r a l r e n t c o n t r o l no lo n g er n e c e ssa ry ,

o r (3) i n a d e f e n s e r e n t a l a r e a by t h e H o u s in g

E x p e d i t e r upon t h e r e c o m m e n d a tio n o f t h e l o c a l r e n t a d v i s o r y b o a rd .1 The H o u s in g a n d R e n t A ct o f 19^9 a l s o s t i p u l a t e d t h a t t h e H o u s in g E x p e d i t e r i n m akin g a d j u s t m e n t s o f maximum r e n t s s h o u l d " . ...

o b s e r v e t h e p r i n c i p l e o f m a i n t a i n i n g maximum r e n t s

. . .

a t l e v e l s w h ic h w i l l y i e l d t o l a n d l o r d s a f a i r n e t o p e r a t i n g In co m e . . . . "2

The d e t e r m i n a t i o n o f w h a t c o n s t i t u t e d a " f a i r n e t o p e r ­

a t i n g in co m e" was l e f t t o t h e H o u s in g E x p e d i t e r . 1 Commerce C l e a r i n g H o u s e , o p . c l t . . p p . 3 0 -3 7 * 2I b l d . , p . 1 0 .

CHAPTER I I

THEORETICAL ANALYSIS OF RENT CONTROL In g e n e r a l d w e llin g u n i t s In t h e h o u s in g m arket a r e q u i t e d issim ila r.

H o u s in g a c c o m m o d a tio n s v a r y I n s i z e , num ber o f ro o m s,

la y o u t, e x p o su re , d e c o r a tio n s , d e s ig n , c o n s tr u c tio n , and lo c a tio n — t o m e n t i o n J u s t a few o f t h e " d i m e n s i o n s " o f t h e h o u s i n g com­ m o d ity .

T h is d i v e r s i t y c o m p l i c a t e s t h e a n a l y s i s , f o r p r i c e t h e o r y

n e c e s s a r i l y a s s u m e s m a r k e t s o f h o m ogeneo us c o m m o d itie s (How can q u a n t i t i e s s u p p l i e d o r dem anded b e f u n c t i o n a l l y r e l a t e d t o p r i c e s o r o t h e r e co n o m ic v a r i a b l e s I f t h e r e I s no s c a l e a v a i l a b l e w i t h w h ic h t o m e a s u re t h e m ? ) . H ow ever, t h e d i f f i c u l t y g e n u in e .

I s p e r h a p s m ore s p u r i o u s t h a n

S u p p o se a s a n a p p r o x i m a t i o n u n i t s w h ic h r e n t f o r t h e

same p r i c e a r e t r e a t e d a s h o m o g en e o u s— w o u ld t h i s do g r e a t v i o ­ le n c e to r e a l i s t i c a n a ly s is ?

To t h e e x t e n t t h a t t a s t e s In h o u s i n g

a c c o m m o d a tio n s do n o t v a r y g r e a t l y fro m i n d i v i d u a l t o I n d i v i d u a l th e a p p ro x im atio n I s " r e a l i s t i c ” ; t h a t I s , to t h i s e x te n t v a lu a ­ t i o n o f u n i t s by t h e m a r k e t a t t h e same r e n t I s I n d i c a t i v e o f c o m p a r a b le a m o u n ts o f h o u s i n g c o m m o d ity .

A rg u m e n ts h i n g i n g on

q u e s t i o n s o f c o n su m e r t a s t e s a n d p r e f e r e n c e s c a n b e s l i p p e r y , b u t t h e a p p r o x i m a t i o n c an b e a t l e a s t p a r t l y grounds.

J u s t i f i e d on t h e s e

C e r t a i n l y , some s u c h a p p r o x i m a t i o n I s n e c e s s a r y t o ah

a d e q u a te a n a l y s i s .

8

9 For th e p re s e n t p u rp o ses c o n s id e r a tio n o f changes in p r i c e d i f f e r e n t i a l s in r e n t a l h o u sin g i s I r r e l e v a n t ; hence th e a n a l y s i s may b e s i m p l i f i e d by a s s u m in g t h e p r i c e d i f f e r e n t i a l s i n h o u s i n g a c c o m m o d a tio n s t o r e m a in c o n s t a n t . p r o b le m t o t h e s t u d y o f a s i n g l e m a r k e t .

T h is r e d u c e s t h e

That i s ,

f o r th e p u r­

p o s e s o f t h i s a n a l y s i s an a p a r t m e n t r e n t i n g a t e q u i l i b r i u m f o r $100 a m onth i s e q u i v a l e n t t o tw o a p a r t m e n t s re n tin g a t e q u i l i b r i u m f o r $50 a m o n th , o r f o u r a p a r t m e n t s r e n t i n g a t e q u i l i b r i u m f o r $25 a m o n th , a n d s o f o r t h .

By c o u n t i n g q u a n t i t i e s i n t h i s m a n n e r,

a s i n g l e demand a n d a s i n g l e s u p p l y c u r v e c an b e o b t a i n e d f o r t h e r e n t a l h o u sin g m a rk e t.

A l l o b s e r v a tio n I n d i c a t e s a norm al sh ap e

f o r th e se c u rv e s. G iv e n t h e c e t e r i s p a r i b u s u s u a l in p a r t i a l e q u ilib riu m a n a ly s is

P

( i . e . th e

r e l a t i v e p r i c e s o f o t h e r c o m m o d i ti e s , r e a l in co m es, te c h n o lo g y , t a s t e s , and p o p u la tio n a re h e ld c o n s ta n t),

im p o s itio n o f e f f e c t i v e

r e n t c o n t r o l m eans a d e c r e a s e i n p r i c e

Po Pi

(re n t)

a n d q u a n t i t y s u p p l i e d , an i n c r e a s e i n t h e q u a n t i t y dem anded. e x is ts .

A h o u sin g " sh o rta g e "

F ig u re 1

G ra p h ic a lly (s e e F ig u re 1 ) , i f th e

demand c u r v e i s r e p r e s e n t e d by DD a n d t h e s u p p l y c u r v e by S 3 , t h e n t h e e q u i l i b r i u m p r i c e w i l l b e p 0 a n d t h e q u a n t i t y dem anded a n d s u p p l i e d q Q.

I f c o n tr o l lo w e rs th e p r i c e t o p ^ , th e n th e

q u a n t i t y s u p p l i e d w i l l b e q^ a n d t h e q u a n t i t y dem anded w i l l be