The inability of Cuban homeowners to sell their dwellings led to less investment in ____________. (Related to Application 2)

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Application 2 HOUSING PRICES IN CUBA APPLYING THE CONCEPTS #2: What is the role of prices in allocating resources? As an illustration of the role of prices in an economy, consider the experience of Cuba without housing prices. In 1960, the government confiscated most housing and outlawed its sale and rental. Tenants who paid monthly rent to the government for 20 years became homeowners of sorts-they officially owned the dwelling, but could not sell it or rent it to others. The impossibility of resale and rental meant that homeowners had less incentive to repair and maintain their property. As a result, a large fraction of the housing stock is in mediocre or poor condition (30 percent in 2013). In addition, few new dwell- ings were built in the last 50 years, leading a large housing deficit (roughly 1 million dwellings in 2013). Housing reforms in 2011 restored prices to the Cuban housing market. The reforms authorize the sale and purchase of homes for Cuban citizens at prices chosen by sellers and buyers. Economists expect these reforms to provide homeown- ers with greater incentives to repair and maintain their dwellings, and to increase housing construction. Related to Exercise 3.5. SOURCES: (1) Carmelo Mesa-Lago, Institutional Changes of Cuba's Economic Social Reforms: State and Market Roles, Progress, Hurdles, Comparisons, Moni- toring and Effects (Washington, DC: Brookings, 2014). (2) Damien Cave, "Cuba to Allow Buying and Selling of Property, With Few Restrictions," New York Times, November 3, 2011.