“Sales”: more sales means more revenue, if people spend more money on rents then they spend less money on other goods The market didn’t change there was a change in demand and supply Who is the demand for rent apartments? Households—young single ppl Concerned with the labor market (you get your income to pay for your house from your job), the mortgage market (have to pay mortgage to buy a house) Options for households: rent, buy (mortgage and credit), move somewhere else Rents increase by 11%--crisis Supply for mortgage are the banks Supply—construction, individual During a recession, demand in a labor market SHIFTS down, less wage, less hours of work, income goes down, demand for rentals shifts—more ppl want to rent when there’s a recession/their wages go down and vise versa
Number of people trying to rent drives the rental market, when income goes down the demand shifts (up? Down?) Financial crisis: the financial markets (market in which you trade financial products —ie. Mortgage) were big players and were affected (disappeared) Mortgage market: supply goes down during this time For the same mortgage rate, you offer less 1. Why increase rents 2. How? a. Rent controls: rents down, quantity down, tax for revenue up, construction down in next years b. Tax subsidy to supply: rents down, quantity up, tax for revenue down, construction increased c. Public housing: rents down, quantity down, cost for city up, no affect on construction (=construction) !! Rent in Seattle is too high. How do we fix it? The professor proposed three solutions in class: rent controls, tax subsidy to supply, and public housing. 1. Rent Controls Rent controls are a real-life example of an economic concept called a "price ceiling." (For your big-picture notes, a price ceiling is the opposite of a price floor.) A price ceiling is the maximum price the government sets on a good. If you look at the graph, the price ceiling is set below the equilibrium price. This throws the equilibrium quantity off-balance. Instead, there is a new quantity supplied to the left of the equilibrium quantity and a new quantity demanded to the right of the equilibrium quantity. Since the price ceiling is set below the market/equilibrium price (and it always will be, otherwise it's called a price floor), there is an excess demand and a supply shortage for the good--because everyone wants to buy it because it is so cheap, but because it is so cheap, no one wants to make it. In this situation, producers (landlords) are harmed and consumers (renters) gain. The price of rent goes down because of the price ceiling. The quantity of apartments goes down because of the change in Quantity Supplied seen on the graph. Tax revenue for the city is as if it has gone up--this means that the city gets similar benefits as if there had been a tax, without the literal tax revenue itself. Future construction will decrease, because no one will want to build more apartments if they cannot get a good price for them.
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