Price Ceiling: Rent Control Analysis & Market Impact

Price Ceiling

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Table of Contents
INTRODUCTION...........................................................................................................................................3
MEANING OF PRICE CEILING.......................................................................................................................3
Price ceiling in Rental Market......................................................................................................................3
DEMAND AND SUPPLY DIAGRAM................................................................................................................4
Set efficiency and Equity arguments surrounding rend set controls for price ceiling..................................5
MOUSA’S THEORY.......................................................................................................................................7
CONCLUSION...............................................................................................................................................8
References...................................................................................................................................................9
Appendix...................................................................................................................................................10

INTRODUCTION
With the changes in economic, it is considered that rent control is designed by undertaking the
maximum price or Rent Ceiling charged by the landlord for their land. It roots belongs to the
years after World War I. This business essay will introduce the topic of rent control and price
ceiling to the reader. This essay is divided into three parts: First, the topic will be introduced.
Secondly, price ceiling and rent control will be analyzed by demand and supply diagrams.
Thirdly, efficiency and equity arguments about the topic will be discussed. Fourthly, Mousa’s
comment on rental property in Australia. Finally we will be presenting conclusions of this essay.
MEANING OF PRICE CEILING
It is analyzed that Price Ceiling in economy emerged when the government of the economy bears
the current equilibrium price and adjust the price accordingly.
It is analyzed that maximum price or price ceiling is basically arises when government believes
that the price is too high and crossing the set limits. It is used to set equilibrium between the cost
and price charged.
Price ceiling in Rental Market
The government can set the limit on how much a landlord should charge rent on the tenant for
his rent and the maximum limit of money which they could ask from the tenant.
. Control on rent increases the quality and reasonability of housing in the rental markets of
Australia.
In the long-run the demand for apartments is decreased because of price control. As suppliers are
not ready to spend their money in building of new apartments, because they are unable to charge
a profitable rent. Landlords neither develop new apartments nor do they maintain the existing
ones. Reason behind this is, that they not only just want to save their costs but also they do not
worry about the demand prevailing in the market because their excessive demand for rent-
controlled apartments.

Therefore, it could be inferred that excess demand of the goods and supply result to leading to
shortage.
According to a survey it has been found out that many economists argues that- “a ceiling on
rents reduces both the quality and quantity of housing available”
DEMAND AND SUPPLY DIAGRAM
i) Demand and supply in the rental market when there is price ceiling :-
The shortage is difference in quantity Qd-Qs
Demand and Supply diagram above shows a result of price ceiling equilibrium Here, Pmax
shows the maximum price fixed by the government. Therefore actual equilibrium cease below
the market equilibrium.

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The actual or original price is P’ but because of price ceiling the actual price P’ falls to Pmax
.Quantity Supplied and Quantity demanded is denoted by Qs and Qd respectively. Shortage is the
difference between Qd and Qs.
This results in a decrease in producer surplus, but a noteworthy bounce in consumer surplus
(Asem, Chung, Cui, & Tian, 2016).
ii) Demand and Supply in rental market when there is no price ceiling:-
It is analyzed that in the absence of government of intervention, price would be adjusted when
the quantity supplied would result to equal to demanded quality at equilibrium P0 and quantity
Q0. The price Pf (horizontal line) shows the price above the equilibrium. This results in excess of
quantity supplied (Qs) over quantity demanded (Qd), a surplus exists (Howell, 2016).
Set efficiency and Equity arguments surrounding rend set controls for
price ceiling
Rent control, is a law mandating a maximum price or it can be said as “rent ceiling”. In rent
ceiling rents are determined less than the equilibrium levels this lead to excessive increase in

quantity demanded over quantity supplied, and control of rent leads to shortage of dwelling
spaces. In a competitive market there is absence on control of prices, if quantity demanded is
larger than the quantity supplied, price rise to eliminate shortage. But in case of rent controls on
it prevents it from attaining market- clearing levels and it results in shortage (Powell, Welsh, &
Farquharson, 2019).
With increased shortage in controlled sector, this leads to excess demand in non-controlled
sectors. This segment of market is likely to be smaller as compared to controlled sector. Because
there exit absence of control in this segment property owners fear that controls be one day be
placed on them. This leads to high demand and less supply in non-controlled sectors, both are
caused due to rent control, resulting boosting of prices in that segment. Paradoxically, then,
however rent in controlled sector may be low, but it is rising greatly for non-controlled sectors
and may be higher for rental housing as a whole (Phang, 2016)..
In the other cases of price ceilings or rent control cases, it causes shortage curtailment in the
quality of the product and queues. Rent control stands at variance in some aspects. The law of
rent control places sitting tenants first in the queue, many of them benefit.
Positive impacts of rent controls are:-
 Rent controls leads to the set control benefits on the propensity to be homeowner.
 Having high influence on the benefits of the set residential mobility.
 Rent control provides stability in long run to tenants which permit them to invest in their
home without the apprehension because the landlord will be the only one to reap the
advantages of improvements.
 Long term tenants improve and maintain the property and contribute to the preservation
of buildings and increase in property values.
 Affordable housing for low-income and moderate-income workers/groups (Apergis,
Fontini, & Inchauspe, 2017).
In Australia, measures similar to rent control comes in the form of Public Housing, where the
commonwealth or state and territory governments provide government-owned housing for low

income earners. The rent is typically low and stabilized over decades, but the conditions are
typically not in the best shape.
MOUSA’S THEORY
Capital Works Deductions are ways of recouping some of the expenses incurred during certain
types of construction done at rental income properties. Capital Works are large and relatively
expensive construction projects. The deductions are normally spread over a period of 25 or 40
years.
If building was completed and ready for rental at some point during the first year and want to
claim, you will only be able to claim a proportional amount based on how much of the time it
was available. The same would apply if at any stage it was stopped from being used to generate a
rental income, either permanently, or for a certain period of time,” Matthew says.
The percentage of deduction in any given rental income year is given in tables available in the
Australia Tax Office’s Rental Property Owner’s Guide, and is dependent, among other things, on
the year of construction, and whether it was built specifically for the purpose of renting.
If a rental property is destroyed or severely damaged by fire. The claim must be in the same
income year the damage occurred. “However, any amount received from insurance, and amount
received from the salvage of the property, must be deducted from this claim (Schlosberg, 2019).
If the property is not completely destroyed, but can be fixed and put to use again as a rental
income property, owners are not allowed to claim any deductions for the period the property was
not available for rent.
If, however, the building was not previously used to produce rental income, the previous owner
does not have to supply the information. In that case, the new owner must use a professional to
provide an estimate, which can be used as a base for the calculation of the capital works
deduction.

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“Property investors need solid tax advice, prior to making an asset purchase, during the life and
upon asset disposal because the Taxation landscape in Australia is constantly changing,”
Matthew concludes.
In my opinion rental properties stand as a fair opportunities for people rather than building a
new apartments and provide people a place at the time of inflation and middle and lower income
groups are also stand as a beneficiary (Hasan, Kow, Dawoud, Mohamed, & Baines, 2019).
CONCLUSION
It can be said that if the price ceiling is set or fixed below the standards for determined
market price then the supply of the set thing would no longer meet the demand. Rent controls
brings a decrease in lodging investment. Price ceilings will create shortage and diminish the
quality of the housing market. It allows people to retain dwellings even in time of inflation. It is
analyzed that it allows tenants to share in the benefit of the property tax control and the control
by the Australian government on rental price prevents rent from attaining market clearing levels
and shortage result.

References
Apergis, N., Fontini, F., & Inchauspe, J. (2017). Integration of regional electricity markets in
Australia: A price convergence assessment. Energy Economics, 62, 411-418.
Asem, E., Chung, J., Cui, X., & Tian, G. Y. (2016). Liquidity, investor sentiment and price
discount of SEOs in Australia. International Journal of Managerial Finance, 12(1), 25-
51.
Hasan, S. S., Kow, C. S., Dawoud, D., Mohamed, O., & Baines, D. (2019). Pharmaceutical
Policy Reforms to Regulate Drug Prices in Asia Pacific Region: The Case of Australia,
China, India, Malaysia, New Zealand, and South Korea. Value in health regional
issues, 18, 18-23.
Howell, N. J. (2016). Small amount credit contracts and payday loans: The complementarity of
price regulation and responsible lending regulation. Alternative Law Journal, 41(3), 174-
178.
Phang, S. Y. (2016). A general framework for price regulation of airports. Journal of Air
Transport Management, 51, 39-45.
Powell, J. W., Welsh, J. M., & Farquharson, R. (2019). Investment analysis of solar energy in a
hybrid diesel irrigation pumping system in New South Wales, Australia. Journal of
Cleaner Production.
Schlosberg, D. (2019). Further uses for the luxury/subsistence distinction: Impacts, ceilings, and
adaptation. The British Journal of Politics and International Relations,
1369148118819065.

Appendix
Table 1. Rent Control
Price Original Quantity Supplied Original Quantity Demanded New Quantity Demanded
$400 12,000 18,000 23,000
$500 15,000 15,000 19,000
$600 17,000 13,000 17,000
$700 19,000 11,000 15,000
$800 20,000 10,000 14,000