Rent Control Advantages And Disadvantages

Economics ISU: The Effects of Rent Control in Abu Dhabi

Rent control sets a limit on the maximum amount of money that can be charged for renting out a house or apartment or a limit on the amount rent can increase by. It acts as a price ceiling. Rent control is usually used to reduce the burden of paying rent for poorer families by keeping rent at a lower and more reasonably price.

Firstly, the tenants in Abu Dhabi will be greatly affected. Tenants who can now rent their home for a lower price due to the price ceiling will benefit because the money they saved from rent can be spent on other things. However, as the price ceiling lowers the price of rent, the supply of housing will decrease (as price decreases, quantity supplied decreases) while

This can be explained using opportunity cost. The alternative to imposing rent caps is unrestricted rents, where the price is determined by the market. As shown on the diagram, the free market price of rents is far more expensive than the price ceiling. This higher price may be problematic in the sense that it ensures that low-income groups can’t afford their rent. Therefore even though a price floor leads to a decrease in the supply of housing, it makes the cost of rent more affordable for everyone. After weighing the pros and cons of both options, the government must have concluded that the opportunity cost of a free-market price was greater than the opportunity cost of implementing a price ceiling.

An alternative to rent control could be a subsidy for lower income families where a part of their rent is paid for by the government. This still allows the market to determine the price of rent and avoids the shortage while assisting lower-income families. The downside of this would be that the government must use up tax dollars and that the the subsidy will increase the demand for housing as well as the price of