21. 24. 27. 30.PART 3

18. 21. 24. 27. 30.

Part 3: Read the following passage and mark the letter A, B, C, or D on your answer sheet to indicate

the correct answer to each of the questions

Rent control is the system whereby the local government tells building owners how much they can

charge their tenants in rent. In the United States, rent controls date back to at least World War II.

In 1943 the federal government imposed rent controls to help solve the problem of housing shortages

during wartime. The federal program ended after the war, but in some locations, including New York City,

controls continued. Under New York's controls, a landlord generally cannot raise rents on apartments as long

as the tenants continue to renew their leases. In places such as Santa Monica, California, rent controls are

more recent. They were spurred by the inflation of the 1970's, which, combined with California's rapid

population growth, pushed housing prices, as well as rents, to record levels. In 1979 Santa Monica's

municipal government ordered landlords to rollback their rents to the levels charged in 1978. Future rents

could only go up by two-thirds as much as any increase in the overall price level.

In any housing market, rental prices perform three functions: (1) promoting the efficient

maintenance of existing housing and stimulating the construction of new housing, (2) allocating existing

scarce housing among competing claimants, and (3) rationing use of existing housing by potential renters.

One result of rent control is a decrease in the construction of new rental units. Rent controls

have artificially depressed the most important long-term determinant of profitability - rents. Consider some

examples. In a recent year in Dallas, Texas, with a 16 percent rental vacancy rate but no rent control laws,