However, in the long-run this could in turn lead to less efficient allocation of resources, this is because the Marginal Cost of supplying a rental will exceed the price of renting the property out due to fixed and variable cost such as the payment of mortgages, maintenance of the properties, bills etc. Therefore, there’ll be no economic incentive for landlords to rent their houses as they would not be able to achieve their objective of profit maximisation and in some cases they may even make a loss. This suggests that in the long-run, the stock of housing will become elastic and therefore there’ll be a contraction in supply from Q1 to Q3 (Figure 2) as landlords may decide to buy then rent houses in other cities who do not have the price ceiling in place or may even stop renting them out, but demand for renting will remain at Q2 therefore the shortage will increase. This has evidently been seen in cities such as Cambridge and Brookline, Massachusetts as the total number of rental units fell by 8 percent and 12 percent respectively in the 1980s, following imposition of stringent rent controls. Rental inventories in most nearby communities rose during that period. Similarly, in California the total supply of rental units dropped 14 percent in Berkeley and 8 percent in Santa Monica between…show more content… Due to the excess demand consumers will be willing to pay prices which are above the maximum price set such as P3 therefore they’ll be given the houses at Q3 where supply is after the regulation is set. Also, it may lead to discrimination against people, as landlord’s may give their properties to only preferred customers which will make some other people worse off therefore making the market inequitable and therefore not correcting the market failure of Pareto
