The aspects of supply and demand combined with rent control is actually one of the more basic levels of price controls. It is known as a price ceiling, like minimum wage. How it create homelessness is by limiting the space available for use. The hoarding and changing the application of resources increases demand, while decreasing supply. The attempt here is to explain how this works with examples and limited resource material. Instead this is an overview. For more detail click here
Supply of a commodity is the price at which an item can be sold, while still making money. A supplier will provide zero of the commodity if the price is zero and well provide as many as possible as the price increases. Supply is an upward sloping line, as the price increases the supply increases. This price includes the costs to make the item, if an item costs money to make above the price it is sold for, it will not be supplied.
The demand of a commodity is a downward sloping line, as the price increases the demand decreases. If the cost for an item is zero, an item is demanded more, if the item is expensive, less is demanded…
The combination of demand and supply create an equilibrium value. When charted simply, the lines are straight and create a nice X. (Again, charted simply, the actual values of individual items can be weird when charted individually, a good example is labor supply, which is a backwards curving line….)
So, Value is created by the resources that go into a commodity, the alternate applications of those resources, and the demand for that commodity. An example: Milk can be used for many different things; Ice cream, cheese, or drinking it. If the demand is high for ice cream then more milk will be used to for it, increasing the costs, decreasing the amount of cheese. These values change as demand changes, as resources change.
A price ceiling a way a third party attempts to control the interactions of others. Price ceilings below the equilibrium value mean that a limited number of the commodity will be supplied, because the supplier no longer makes any money creating more items. This price also creates a level at which, if the cost of the commodity is greater than the price ceiling none of the item is create. Additionally, the demand for the item is increased, because it is being sold at a lower value than actual value. Because of the increased demand and the decreased supply, those that can afford to hoard do so. They have no incentives to apply their resources to other places. This obviously is altered based on the ability of the item to be hoarded. (Milk is not hoarded very often, especially in warm environments.)
There is an equilibrium value for rentable properties. This value is created by externalities, which come down to supply and demand, based off resources. Rent Control is a price ceiling, it limits the value at which the rentable properties are sold. The base effect is to limit the supply, while increasing the demand. An additional effect that is created, because this is land/space, is that the richer individuals that can afford to be patient, end up with more and they hoard it. This is why people like Mayor Marion Barry had multiple apartments, the rent was cheap enough and the value high enough. Additionally, spaces that would house many people instead only house a few, this is hoarding. In San Francisco, for instance, a great amount of rent control spaces only have one person [1]. The convex of limiting supply and increasing demand creates homelessness…
If the cost is too high in comparison to the income, the building owner can simply abandon the building. Leaving all those in the building without a place to live. Or, the building owner can burn down the building, and build something different, something without the quality requirements or price controls. This is compounded by, there is no reason to build new homes if the rent control price in not enough to offset the cost to create and upkeep the building. Especially if demands are made on the quality of the buildings that must be provided.
Supply and Demand models are hard to apply at times. And it is where third parties really fuck up the process. For example: Swag, a base glance at supply would suggest that swag is impossible, that paying for items to give away a supplied item with zero profit, and glance at demand would suggest an infinite amount of these items would be wanted… But who the hell wants an infinite amount of stickers with the Geico lizard on them? Simultaneously, Geico provides these stupid things free of charge… The reason is that the value for Geico is getting their name out there, with brand recognition. And the application for the stickers, on the demand side, is limited. But, if a third party came in, decided base on their current value system that the stickers are a waste of resources. Get a law passed banning Swag, no item can be given away for free! The result many fold. One, more legislation, which admittedly would make lawyers happy. Two, charity is not allowed, which would make a lot of organizations very unhappy. And so on…. Either way, no one really benefits from the influence, when instead they could just let the two parties, Geico and the convention goer, decide on the value.
[1]San Francisco Housing DataBook, a 2001 study commissioned by the city and produced by consultants called Bay Area Economics