Restrictive Rental Policies and a Tough Trade Off: Lower Rents vs. Less Construction in Geneva

Kristyna Ters and Konstantin A. Kholodilin

No 2143, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: We study how rent control and housing rationing shape housing investment and market tightness in Geneva using a VAR on annual data (1994–2022) with generalized impulse responses and Granger causality. We find that housing rationing functions as a binding quantity restriction as it precedes a contraction in new institutional construction and Granger-causes lower vacancy rates. This increased scarcity is an effect amplified by persistent positive ne t migration. At the same time, housing rationing redirects capital toward the intensive margin as both institutional and private investors shift to stock-preserving renovations. Primarily operating through the price channel, rent control induces a transitory, statistically significant rise in private renovation investments and compliance-salient upgrades, rather than sustained new-build activity. Across both instruments, the dominant margin of adjustment is short-run renovation by private owners and institutions, not additions to stock. The policy implication is clear: without complementary, density-enabling approvals and a reduction in rent control, government regulation will continue to reallocate investment from new construction to renovations. This will tighten utilization and increase scarcity in an already demand-pressured market.

Keywords: rent control; housing rationing; real estate finance; construction investments (search for similar items in EconPapers)
JEL-codes: C32 O18 R31 (search for similar items in EconPapers)
Pages: 37 p.
Date: 2025
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