Investment incentives of rent controls and gentrification – Evidence from German micro data

Vera Baye () and Valeriya Dinger ()
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Vera Baye: University of Osnabrueck
Valeriya Dinger: University of Osnabrueck and Leeds University Business Schoo

No 122, IEER Working Papers from Institute of Empirical Economic Research, Osnabrueck University

Abstract: We empirically document that the effectiveness of the German rent control introduced in 2015 in achieving rental housing affordability is limited. Exploring the reasons for this limited effectiveness we focus on the impact of the rent control on the yield on rental housing investments proxied by rent-price ratios which we derive by matching micro-level quotes on similar objects offered for rent and for sale. Exploiting the temporal, regional, and objectspecific variation generated by the design of the rent control we identify a causal negative effect of the rent control on the yield of rental objects subject to the regulation. Further, we zoom into the spillovers across regulated objects and objects in the affected markets that were exempt from the regulation and find rising yields for the exempted objects, suggesting that the regulation contributed to gentrification via a shift of rental housing supply away from the regulated segment.

Keywords: rent control; micro data; rent-price ratio; housing affordability; housing supply (search for similar items in EconPapers)
JEL-codes: E65 R10 R21 R23 R31 R38 (search for similar items in EconPapers)
Pages: 51
Date: 2023-01-31
New Economics Papers: this item is included in nep-eur and nep-ure
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