Rent Control, Market Segmentation, and Misallocation: Causal Evidence from a Large-Scale Policy Intervention

Andreas Mense, Claus Michelsen and Konstantin Kholodilin ()

No 1832, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: This paper studies market segmentation that arises from the introduction of a price ceiling in the market for rental housing. When part of the market faces rent control, theory predicts an increase of free-market rents, a consequence of misallocation of households to housing units. We study a large-scale policy intervention in the German housing market in 2015 to document this mechanism empirically. To identify the effect we rely on temporal variation in treatment dates, combined with a difference-in-differences setup and a discontinuity-intime design. By taking a short-run perspective, we are able to isolate the misallocation mechanism from other types of spillovers. We find a robust positive effect on free-market rents in response to the introduction of rent control. Further, we document that rent control reduced the propensity to move house within rent controlled areas, but only among highincome households. Interpreted through the lens of our theoretical model, this spillover is a clear sign of misallocation. Further, we document that the spillover brings forward demolitions of old, ramshackle buildings.

Keywords: Misallocation; price ceilings; rent control; spillovers (search for similar items in EconPapers)
JEL-codes: D2 D4 R31 (search for similar items in EconPapers)
Pages: 67 p.
Date: 2019
New Economics Papers: this item is included in nep-eur and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://www.diw.de/documents/publikationen/73/diw_01.c.698603.de/dp1832.pdf (application/pdf)

Related works:
Journal Article: Rent Control, Market Segmentation, and Misallocation: Causal Evidence from a Large-Scale Policy Intervention (2023)
Working Paper: Rent control, market segmentation, and misallocation: Causal evidence from a large-scale policy intervention (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp1832

Access Statistics for this paper

More papers in Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Bibliothek ().