Suppose that you are the economic adviser to a local government

Question Description

Suppose that you are the economic adviser to a local government in Central America that has to deal with a politically embarrassing shortage of affordable housing that was caused by rent controls that the government recently imposed. Your first suggestion is to get rid of the rent controls. Explain how and why rent controls (price ceilings) distort markets and what are some of the economic effects of rent controls.Since the politicians are unwilling to get rid of the rent controls, they offer you a list of suggestions to make housing more affordable:

1. Government provided housing

2. Tax deductions to renters

3. Tax breaks to construction companies who provide affordable housing.

Explain the costs and benefits of each and which option would you suggest?