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CAT Critical Reasoning Practice question with Solution 96

In essence, all rent-control policies involve specifying a maximum rent that a landlord may charge for a dwelling. The rationale for controlling rents is to protect tenants in situations where limited supply will cause rents to rise sharply in the face of increased demand. However, although rent control may help some tenants in the short run, it affects the rental-housing market adversely in the long run because landlords become reluctant to maintain the quality of their existing properties and even more reluctant to have additional rental-housing units built.

Which one of the following, if true, best explains the landlords' reluctance described above?

[A]. Tenants prefer low-quality accommodations with rent control to high-quality accommodations without it.
[B]. Rent control makes it very difficult for landlords to achieve reasonable returns on any investments in maintenance or in new construction.
[C]. Rent control is a common practice even though it does nothing to alleviate shortages in rental housing.
[D]. Rent control is generally introduced for political reasons and it takes political action to have it lifted again.
[E]. Tenants prefer rent control to the alternative of receiving direct government subsidies toward rents they cannot afford.
Answer: B

Why are landlords reluctant, under rent control, to maintain existing rental properties and build additional units? As described, rent control cuts down on a landlord’s profits. If profits decrease, then the incentive to maintain the properties that generate the profits would also decrease. According to (B), rent control reduces a landlord’s profits so much that it becomes difficult to achieve a “reasonable” return on his or her investment. So (B) explains the landlords’ reluctance to build and maintain units. If it’s hard to achieve a reasonable return on an investment, why bother making it? That wouldn’t be reasonable.

(A) and (E) go astray in talking about the preferences of tenants, whereas we’re interested in the actions of landlords. Nothing in the passage explains how tenants’ preference for rent control would translate into landlords’ abhorrence to same.

(C) totally fails to address the issues of how the “common practice” of rent control contributes to housing shortages and why it discourages the maintenance of existing properties, which is what we’re interested in.

(D) Information about the political origins of rent control doesn’t explain why rent control leaves landlords reluctant to invest in maintenance or new construction.

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