A government introduces a legally binding maximum rent cap in a metropolitan housing market to improve affordability for low-income tenants. This policy is most likely to result in government failure because it:
encourages landlords to increase investment in property maintenance to attract higher-quality tenants.
leads to a contraction in demand and an expansion in supply, resulting in a housing surplus.
creates an incentive for tenants to sub-let properties illegally at market-clearing rates, leading to a shadow market.
eliminates the search costs and administrative burdens associated with finding housing in the private sector.
