Housing problem becomes a serious problem in every nation. Just take a look in Canada, more than 11000 people have difficulty in renting a house. Therefore, government should have the obligation to deal with this problem. Rent control, like all government-mandated price controls, is a low placing a maximum price on what landlords may charge tenant. Government will set a price below the original equilibrium price, which is what a price ceiling does. By imposing rent control, the rental price will fall from the original equilibrium (Pe) to a new price (P1) in figure 1. As the price decrease, tenants will spend smaller amount of their income on housing. Thus, imposing rent control helps the low wage earners to rent a house in a lower price.
Unfortunately, there is a serious threat of survival of affordable rental housing behind imposing rent control. Imposing rent control actually decreases the supply of housing. In figure 2, the quantity of supply will decrease from Qe to Q1. This is because as the rent is not allow to increase, there will be no inducement for developers to replace the existing units that wear out or even build new houses. Moreover, the landlords will simply sell off the apartments or convert them into condominiums if they are not able to make a good profit. Thus, shortage will occur. More than that, rent control will create shadow markets (illegal markets) which the rents at there are much higher than the rent controlled price. Yet as rent control hold down rents for some units, costs for all other rental housing skyrockets. In the end, rents may be raised as a whole. Therefore, rent control can not be imposed in order to help those low wage earners.
The other way to help those help the low wage earners is to provide public housing. It is low cost housing in multi-unit complexes that are available to low income families, typically requiring tenants to pay no more than 30 percent of their family monthly income for rent.
