Reference no: EM13733364

Currently in the US there is a demographic trend that has caused dramatic increases in the number of students attending universities. The children of Baby Boomers have grown up and are ready for college. Already the number of students in US colleges has increased by one million when compared to numbers in 1990. Further increases are expected. These numbers have meant that, for many universities, there is simply not enough room to house the students in university dorms. These "overflow" students have been forced to look for off-campus housing options and this has driven up rents in neighbourhoods surrounding universities. The impact of the increasing number of students living off-campus has not been entirely welcomed by the neighbourhoods involved. For example, increased rents have driven up house prices. In neighbourhoods around Georgetown University in Washington D.C., house prices have increased at around the rate of 8.3% compared to the overall rate of 4.8% for the city for the same time period (from about 1997 to the present.) There is another problem in Boston, which has a total of 35,000 students across the city, forced to find off-campus housing. "Our affordable housing is being eaten up," says Stephen J. Murphy, a city councilman at large." Murphy further claims that landlords often prefer renting to groups of students rather than families as they can get substantial rent paid for each bedroom in the apartment. "His proposal: Charge universities $1,000 per semester for each student they can't afford to house on campus, and use the money to build affordable housing."

a. Campus housing is a fixed good (in the short run), given the increase in the number of students at the university, what would you expect to happen to the price of dorm rooms? Use supply and demand diagrams to explain.

b. The price of campus housing is set by the University. In an attempt to provide "affordable" housing for students, often a price is set which is lower than what the market would dictate. What are the ramifications for the market? Show on your supply and demand diagram. How might the university decide who will get a room on campus?

c. How might the proposal by Boston City Councilman, Stephen Murphy, change your supply and demand diagram? Would it help with the problem of supply of low-income housing?