Policy alternatives
Rent controls do not address the root problem (see. Applications (Rent Control)) – and cause new issues.
We analyse two distinct alternatives:
- Subsidy to renters – reduces costs for renters without driving landlords out of the market
- Subsidy to landlords – makes it more attractive to supply rental housing
Subsidy to Renters
Key advantage over rent controls: Allows price mechanism to equilibrate demand and supply (it means NO queues and underground market).
However, subsidy still creates a distortion and destroys surplus
- Willingness to pay of the marginal renters is lower than the cost of the marginal landlord
Deadweight cost may be larger if government finances with distortive taxes
Subsidy to Landlords
Outcome
Surprising result: subsidizing the two sides of the market yields the exact same economic outcome!
General insight about economic incidence of subsidies: economically irrelevant which side of the market is beneficiary. Precisely the same logic applies to taxes.
Do Renters or Landlords Gain More?
Our insight about the incidence of aggregate Aggregate Shocks (全市场冲击） also applies here.
- Landlords gain more if supply curve is relatively steep (diagram in left)
- Renters gain more if demand curve is relatively steep (diagram in right)