Does Regulation Discourage Investors? – Sales Price Effects of Rent Controls in Brandenburg

We analyze to what extend sales prices for residential housing prices reacttowards rent-price regulation. We do this exploiting a quasi-natural designin the German federal state of Brandenburg while using actual transactionprice data, provided by the committee of evaluation experts. Brandenburg announced and introduced both a capping limit for existing rental contracts as well as a price ceiling for new contracts for municipalities with ”tight housing markets” in 2014. Whether or not a municipality falls under this classification is based upon a region’s housing data that is translated into a specific score that ranges from 0 to 100. The regulations were introduced in municipalities with scores of above the average plus two standard deviations. We exploit this sharp cut-off point in a regression discontinuity design. First, we standardize prices in a hedonic regression model. Then we compare prices in regions that are located marginally above this threshold with prices in those slightly below. The analysis contains 15 municipalities in the treatment and 20 in the control group. An analysis of media citations shows that the public discussion of the two instruments did not start before the year 2013. We therefore compare a time frame before 2013 with one after 2014 to exclude anticipation effects. We expect to find no significant effects when we use a time-frame prior to media coverage of the regulations. When people are generally informed, however, apartment prices should be lower in regulated regions.