Suppose that, in a certain advanced industrialised country, the government has applied price controls
over rents of both public and private rented accommodation for a number of years, and a serious
problem of widespread homelessness has built up. Just recently, the rent price controls have been
eased. Which of the following consequences should now occur?

1 An increase in homelessness

2 In the longer term, an increase in new building work

3 The provision of more rented accommodation

4 Fewer owner-occupied dwellings

B Rationale: When rent controls are eased, the effect is similar to raising or removing minimum
prices in the rented housing market. We should expect higher rents, more supply of housing, and
a closing of the gap between demand for rented housing and supply of rented accommodation.
Changes 2 and 3 should therefore occur. The reverse of Change 1 should happen, and
homelessness should decrease. Given widespread homelessness, it is unlikely that the easing of
rent controls will have any effect on demand for owner-occupied dwellings.