A recent study suggests that in New York City, rent control causes roughly ________ percent of rent controlled apartment mismatch. (Related to Application 2)

Transcribed Image Text:

Application 2 RENT CONTROL AND MISMATCHES APPLYING THE CONCEPTS #2: Why does the market equilibrium maximize the value of a market? Under rent control, the government sets a maximum price for housing, decreasing the quantity supplied and the total value of the market. Rent control and other maximum prices cause inefficiency of another sort. Consider a consumer living in a rent-controlled apartment who experiences a change in circum- stances that would normally cause the consumer to move to a different apartment. For example, when a single person renting a tiny apartment gets married, he or she is likely to move to a larger place. But a consumer in a rent-controlled apartment may stay in the tiny but inexpensive apartment, generating a housing mismatch. A recent study suggests that in New York City, about 20 percent of rent-controlled apartments are mismatched. The most famous case of a mismatched tenant is former Mayor Koch of New York. When he was elected mayor and moved into the mayor's official residence, he held onto his rent- controlled apartment, presumably anticipating his post-mayor life in an apartment at a controlled rent that was roughly one- third the market rent. Related to Exercise 2.7. SOURCE: Based on Edward Glaeser and Erzo Luttmer, "The Misallocation of Hous- ing under Rent Control," American Economic Review 93 (2003), pp. 1027-1046.