Optimal Housing Maintenance under Rent Control

Abstract

This study represents a theoretical and empirical investigation of profit maximizing behavior under rent control with particular reference to optimal maintenance strategy. For our purpose, rent control means that the nominal rental price of a housing unit is fixed or adjusted upward at the discretion of the Rent Commission. Fixing the nominal rent does not, of course, freeze the real rent. It is the thesis of this study that, constrained by rent control and the high fixed costs of housing, secular increases in demand and input prices generate a disequilibrium system in which the level of maintenance becomes a major adjustment mechanism. In particular, real rents are increased by curtailing maintenance. Descriptive and financial data on rent controlled apartments in New York City' are used to test the hypothesis. Section II reviews some basic economics of housing, discusses several adjustment mechanisms which come into play under rent control and develops a dynamic model of profit maximization. Section III presents the empirical analysis based on the inferences of the model. Section IV summarizes.