Rent control creates a shortage

The chain in words

1. Step 1

   Before the cap

   Apartments rent for about 1,500 dollars a month and 100 thousand units are let. The horizontal axis is thousands of apartments rented. The vertical axis is the monthly rent. The market clears at E₀, with no queue and no empty units.

2. Step 2

   The ceiling appears

   The council caps rents at 1,200 dollars, below the market rent. No curve moves: tenants' demand and landlords' supply are what they were. The cap is a horizontal line the market may not cross. At 1,200 dollars, renters want more apartments than landlords will let, and the gap is a shortage.

3. Step 3

   The shortage stays

   The rent cannot rise to clear the market, so the shortage persists. Landlords take fewer tenants and let units run down. Renters queue, pay key money, or move to the suburbs. The lucky get a cheap flat, the rest get nothing.

Takeaway. A binding price ceiling moves no curve: it holds price below equilibrium and leaves a shortage that cannot clear.

Draw it yourself

More on the supply and demand graph