The government limits what electricity providers can charge households and firms. See Figure 5-1. Another example of a price ceiling is rent control, which sets upper limits on rents charged to tenants by owners. People argued that rent controls were needed to maintain the affordability of housing for elderly people on fixed incomes and for others who couldn t afford the rapidly increasing rents. Only senior citizens with fixed incomes, and others in similar circumstances were affected.
Economists point out how rent controls create a situation of excess demand.
Rent controls make units so under-priced that many people want to rent. Apartment owners never have to advertise, people come to them looking for vacancies. An important point economists make is that rent controls reduce the cost to apartment owners of discriminating. If they cannot get higher rents from people who look different or act different, they don t have as strong an incentive to consider renting to them. In Santa Monica, where rent controls were put in place in 1979, many apartment owners rented their units to family members, it was such a good deal to have a unit in Santa Monica.