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  PASSAGE 31

  Rent control is the system whereby the local government tells building owners how much they can charge their tenants in rent. In the United States, rent controls date back to at least World War II.

  In 1943 the federal government imposed rent controls to help solve the problem of housing shortages during wartime. The federal program ended after the war, but in some locations, including New York City, controls continued. Under New York's controls, a landlord generally cannot raise rents on apartments as long as the tenants continue to renew their leases. In places such as Santa Monica, California, rent controls are more recent. They were spurred by the inflation of the 1970's, which, combined with California's rapid population growth, pushed housing prices, as well as rents, to record levels. In 1979 Santa Monica's municipal government ordered landlords to roll back their rents to the levels charged in 1978. Future rents could only go up by two-thirds as much as any increase in the overall price level.

  In any housing market, rental prices perform three functions: (1) promoting the efficient maintenance of existing housing and stimulating the construction of new housing, (2) allocating existing scarce housing among competing claimants, and (3) rationing use of existing housing by potential renters.

  One result of rent control is a decrease in the construction of new rental units. Rent controls have artificially depressed the most important long-term determinant of profitability — rents. Consider some examples. In a recent year in Dallas, Texas, with a 16 percent rental vacancy rate but no rent control laws, 11,000 new housing units were built. In the same year, in San Francisco, California, only 2,000 units were built. The major difference? San Francisco has only a 1.6 percent vacancy rate but stringent rent control laws. In New York City, except for government-subsidized construction, the only rental units being built are luxury units, which are exempt from controls. In Santa Monica, California, new apartments are not being constructed. New office rental space and commercial developments are, however. They are exempt from rent controls.

  1. What does the passage mainly discuss?

  (A) The construction of apartments in the United States.

  (B) Causes and effects of rent control

  (C) The fluctuations of rental prices

  (D) The shortage of affordable housing in the United States.

  2. The word They in line 9 refers to

  (A) the tenants

  (B) their leases

  (C) places

  (D) rent controls.

  3. Which of the following was NOT a reason for the introduction of rent controls in Santa Monica,California?

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