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Binding Price Ceilings on Ceilings

December 2, 2013 Leave a comment

Venezuela’s President Nicholas Maduro just can’t resist:

Maduro also announced on Friday a new decree to limit monthly rents for commercial properties, to 250 bolivars ($40) per square meter, in a bid to reduce costs passed to consumers.

Usually price ceilings are put in place to protect consumers with low purchasing power. When you put a price ceiling in place to protect producers–notice that this ceiling is on commercial rents, not housing–something is spinning out of control.

Politically, this move is fairly astute, in that new commercial space takes a long time to build, so the shortage this will create will not be apparent immediately. In fact, it may boost occupancy rates in the near term.

One thing’s for sure…this will tighten the local market for commercial space if it’s enforced. For one thing, renters will demand more space. Also likely: owners of commercial space will simply refuse to rent some of the best spaces at the lower price, forcing renters who want the best space into their inferior facilities.

Owners also now have a lot less incentive to maintain properties to get maximum rents. It’s happened before!

16-abandoned-office

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Categories: Microeconomics Tags: