what are the economic effects of having rent control?

Answer 1

Both in theory and historically; a shortage of housing.

Answer 2

rent control is interference with the free market for housing by the government. The partical effect of price control is to cap the price of rent at a certain point. The result of price control in the short run is likeyl that more people will be able to afford housing. However in practicality it will often lead to shortages in housing over the long run, as owners sell their investment properties to invest in more profitable ventures.

The problem is that housing can be seen like any other investment. A buyer will invest capital ($$) in the form of a downpayment fora house only if he either expects to live in the home himself (in which case price control has no effect, since its purpose it to affect landlords), or as an investment property. For an investment property to be profitable the rents derived from the property have to be greater then the monthly mortgage payments. But not only that. The profit off the rent also has to be better then the next best substitute. So for example if a landlord knows he can expect a 5% return on a bank note, but only a 3% return on investment from a rental property, then there is an incentive to invest in the bank note rather then the property.
Another secondary problem of price control besides that of shrinking the supply of housing is the problem of improvements. A landlord who still makes a profit enough to keep the property (despite the price controls), still faces the probleem of how to upgrade or improve a home when the rent remains constant. What this means is that landlords will not improve delapidated homes because they cannot passs on the cost of the improvements on to the consumer (the tenant), and so pricecontrols tends to lead to delapidation of existing homes under price controls.

From a practical market prospective, it is better to build more housing, thus increasing supply of housing, which will tend to lower the price of housing, then it does to institute price controls that will further shrink the availability of rentable properties. However politicians usually think of only the short term, which atl east partially explains why price controls continue to exist despite its proven negative externalities.

Answer 3

In short, declining quality of rental housing and shrinking supply of rental housing due to conversion of rental housing into condominiums.