2 What are the effects of a rent ceiling that is set below the equilibrium rent? Blocking rent adjustments doesn’t eliminate scarcity.

Rather, because it decreases the quantity of housing available, it creates an even bigger challenge for the housing market. Somehow, the market must ration a smaller quantity of housing and allocate that housing among the people who demand it. When the rent is not permitted to allocate scarce housing, what other mechanisms are available and are they fair? Three possible mechanisms are:

◆ A lottery

◆ First-come, first-served

◆ Discrimination A lottery allocates housing to those who are lucky, not to those who are poor. First-come, first-served allocated housing in England after the Second World War to those with the foresight to get their names on a list first, not to the poorest. Discrimination allocates scarce housing based on the views and self-interest of owners. Discrimination based on friendship, family ties and criteria such as race, ethnicity or sex is more likely to enter the equation.

We might make such discrimination illegal, but we cannot prevent it from occurring.