| The Apartment's
Great, But Will You Pay My Rent for Me?
||Ease of Home Purchases has Dampened
the Market for Rental Housing
|| Supply and Demand; Equilibrium
| Key Words
Demand, Supply, Price, Rebate
| News Story
The In the last few years, low mortgage rates and the excess supply
of rental housing has helped renters get bargains as landlords scramble
to sign rental leases. Since the cost of home ownership has fallen dramatically
with low interest rates, more people are electing to buy homes rather
than to rent apartments. As a result, vacancy rates nationwide are at
their highest in 15 years.
To induce renters to sign leases, some firms are offering a number of
incentives, from waiving security deposits to giving away free rent to
providing 51-inch high-definition plasma flat-screen television (in Peter
Cooper Village in Manhattan). These incentives are not likely to disappear
in the short term, either, as construction of new housing has increased
by almost 400,000 units in December 2003, and mortgage rates continue
to drop or at least hold steady.
(Updated April, 2004)
What has the reduced cost of home ownership done to the market
for rental housing? Use a graph of supply and demand for rental
housing to illustrate your answer. Does this change represent a
change in demand or a change in quantity demanded?
|| What can happen in the market for rental
housing that would reverse this situation of a market in which the
renters have all of the bargaining power? Give some examples.
|| At the March meeting of the Federal Reserve
Board of Governors, interest rates were held steady nationally. What
impact, if any, would this have on the market for rental housing?
|| Ray A. Smith, "Landlords
Launch New Wave of Deals." The Wall Street Journal. 26 February
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