Quiz 7: Housing
In United States home ownership represents the American Dream. The factors that affect the family's ability to afford housing are 1. The down payment 2. The monthly mortgage payment 3. The buyer's income and debt. At the time of the purchase of a house a buyer must pay the closing cost that includes down payment, loan application fees, points, title search fees, title insurance, attorney's fees, appraisal fees and other miscellaneous charges. The down payment is the amount of buyer's own money that must be paid at the time of the purchase. The points are the fees charged by a lender at the time it grants a mortgage. Mortgage insurance is the insurance that pays off the mortgage if the borrower defaults. The monthly mortgage payment is made up of payment on the principle of loan plus interest payment, property tax and insurance payment. The larger amount of the monthly payment is interest rate. The property tax is levied by the government to finance police and education. Homeowner's insurance that protects the lender from loses from natural disasters. The buyer's income and debt is an important factor in determine whether a family can afford a house. The lender requires that the buyer must satisfy an affordability guideline that is the monthly mortgage payment must not exceed a certain percentage of buyer's monthly income. Therefore, to afford a house one must have enough money to pay the closing cost; moreover, the monthly mortgage payment must be equal to a certain portion of the buyer's income.
Rental ceiling is a way to assists low income household to survive the housing affordability crisis. The government fixed the rental of the housing below the equilibrium rate so that the poor can afford it. We can explain it through the demand supply graph giving in the figure below. Figure 1 Here the demand for the apartment is given by D and the supply of the same by S. The equilibrium rent is $500 per apartment and at this price the equilibrium quantity of apartments were 1000 units. Now suppose that the government imposes a rental ceiling of $400 to help the poor tenants. Initially, nothing happens the landlords continue to supply 1000 units while the tenants pay less rent. As time passes, both the prospective tenants and the landlords adjust to the rental ceiling. The tenants demands 1200 units while the landlords decreases the supply to 800 units. Thus there arises a shortage of 400 units. This shortage cannot be rationed away by the market, as the price cannot move up beyond $400. Initially, the rental ceiling benefits those who already have an apartment because they now pay fewer rents. It also benefits those who move into the new apartment because they have to pay fewer rents than they would have without ceiling. In time, the rental ceiling helps the development of illegal market. Because, as time passes and the landlords receive fewer rents, they do less routine maintenance and the property deteriorate rapidly. The property that is well maintained becomes a real bargain. Often the units are subleased at the higher than the ceiling rate, the landlords often demand large security deposits, etc. All the prospective tenants and sub leasers who rent these apartments are middle-class families. Thus, rent control in the long run benefits the middle and higher income people. The poor are the group harmed the most by rent controls. They have fewer choices. They cannot afford to buy homes. They cannot move out to the suburbs. They cannot afford the huge security deposit needed to move into a rent control apartment in good repair. They often crowded into substandard, overpriced housing, or become part of our nation's homeless. In the long run, the rental ceiling helps the development of illegal market. Because, as time passes and the landlords receive fewer rents, they do less routine maintenance and the property deteriorate rapidly. The property that is well maintained becomes a real bargain. Often the units are subleased at the higher than the ceiling rate, the landlords often demand large security deposits, etc. The long run effect of rental ceiling prompted the landlord and the tenants to engage in illegal activity. The landlord often charges higher security fee for a well maintained apartment, the tenants often sublease their apartment at a rate higher than the rental ceiling rate. The rental ceiling also encourages discrimination. The landlord often because of housing supply shortages, be selective about who they accepts as tenants. The landlord may decide to discriminate on the basis of age, sexual orientation, race or ethnicity, religion, or even student status.
Rental ceiling is a way to assists low income household to survive the housing affordability crisis. Rental ceiling often give rise to shortage in the supply of housing. The landlord often because of housing supply shortages, be selective about who they accepts as tenants. The landlord may decide to discriminate on the basis of age, sexual orientation, race or ethnicity, religion, or even student status. Therefore in a collage area if people will discriminate on the basis of the student status, the landlord will deny access by keeping their rent unusually too high. The students are basically low income person so they cannot afford higher rented apartments. This way they are kept off from those apartments.