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Rent Control and Misallocation

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  • Morten Skak
  • Gintautas Bloze

Abstract

Rent control is still an important type of government regulation of housing markets in many countries and numerous researchers have studied its implications for allocation, welfare and investments in housing. The present paper aims to improve our understanding of the effect of second-generation rent control when it is applied only to one sector of the rental market. It is diagrammatically shown that the welfare effects are very different between a universal and a limited application of rent control. Studying the Danish case of second-generation rent control, lower rents are found in controlled sectors and a minor increase of the rent in the uncontrolled sector. Using the area of living space in the dwelling as a measure for housing consumption, evidence is also produced of both overallocation and underallocation of housing in the rent-controlled sectors; as envisaged by economic theory.

Suggested Citation

  • Morten Skak & Gintautas Bloze, 2013. "Rent Control and Misallocation," Urban Studies, Urban Studies Journal Limited, vol. 50(10), pages 1988-2005, August.
    • Handle: RePEc:sae:urbstu:v:50:y:2013:i:10:p:1988-2005
    DOI: 10.1177/0042098012470390
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    Cited by:

    1. Lars Vandrei, 2018. "Does Regulation Discourage Investors? Sales Price Effects of Rent Controls in Germany," ifo Working Paper Series 262, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    2. João Miguel Ejarque & Joachim Borg Kristensen, 2013. "Rent Control and the Housing Expenditure Share," CAM Working Papers 2013-01, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
    3. Ligia Topan & Miguel Jerez & Sonia Sotoca, 2020. "The impact of oil prices on products groups inflation: is the effect asymmetric?," Documentos de Trabajo del ICAE 2020-01, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    4. Mense, Andreas & Michelsen, Claus & Cholodilin, Konstantin A., 2017. "Empirics on the causal effects of rent control in Germany," FAU Discussion Papers in Economics 24/2017, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.
    5. Thomschke, Lorenz, 2016. "Distributional price effects of rent controls in Berlin: When expectation meets reality," CAWM Discussion Papers 89, University of Münster, Münster Center for Economic Policy (MEP).
    6. Christopher B Goodman & Megan E Hatch, 2023. "State preemption and affordable housing policy," Urban Studies, Urban Studies Journal Limited, vol. 60(6), pages 1048-1065, May.
    7. Sebastian Steffen & Lerbs Oliver, 2016. "Mietspiegel aus ökonomischer Sicht – Vorschläge für eine Neuregulierung," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 17(4), pages 347-363, December.
    8. Micheli, Martin & Schmidt, Torsten, 2015. "Welfare effects of rent control — A comparison of redistributive policies," Economic Modelling, Elsevier, vol. 48(C), pages 237-247.
    9. Kholodilin, Konstantin A., 2024. "Rent control effects through the lens of empirical research: An almost complete review of the literature," Journal of Housing Economics, Elsevier, vol. 63(C).
    10. Clarke, Dylan R. & Gold, Daniel E., 2024. "The effects of residential landlord–tenant laws: New evidence from Canadian reforms using census data," Journal of Urban Economics, Elsevier, vol. 140(C).
    11. Lerbs, Oliver & Sebastian, Steffen P., . "Mietspiegel aus ökonomischer Sicht – Vorschläge für eine Neuregulierung," Beiträge zur Immobilienwirtschaft, University of Regensburg, Department of Economics, number 10, August.
    12. Mense, Andreas & Michelsen, Claus & Kholodilin, Konstantin A., 2023. "Rent Control, Market Segmentation, and Misallocation: Causal Evidence from a Large-Scale Policy Intervention," Journal of Urban Economics, Elsevier, vol. 134(C).
    13. Baye, Vera & Dinger, Valeriya, 2022. "Investment Incentives of Rent Controls and Gentrification - Evidence from German Micro Data," VfS Annual Conference 2022 (Basel): Big Data in Economics 264120, Verein für Socialpolitik / German Economic Association.

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    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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