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Price regulation, inflation, and nominal rigidity in housing rents

O’Toole, Conor, Maria Martinez-Cillero and Achim Ahrens
Authors registered in the RePEc Author Service: Maria Martinez Cillero () and Conor M. O'Toole ()

Journal of Housing Economics, 2021, vol. 52, issue C

Abstract: In this paper, we explore the impact of a 4 per cent inflation control on price changes for rental contracts in Ireland. Testing across the price distribution, we explore the cap’s impact on the share of the market experiencing: 1) a price decline; 2) unchanged rents (nominal rigidity); 3) a positive growth rate below the cap; 4) the maximum allowable growth (4%); and 5) growth above the cap. Our identification strategy uses a contiguous border difference-in-difference approach on a novel property-level tenancy panel. We find the overall rent growth rate fell by 1–2 percentage points following the regulations. However, we find different impacts across the distribution: not all high growth rates converged to the cap as the distribution generally shifted to the left and nominal rigidity rose. Furthermore, we find some inflationary pressures on rents that previously were unchanged as landlords priced up to the cap. Heterogeneous effects by company or household landlord are evident.

Keywords: Rent control; Nominal rigidity; Price stickiness; Ireland (search for similar items in EconPapers)
JEL-codes: R21 R28 R31 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.jhe.2021.101769

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