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Housing Market Spillovers: Evidence from the End of Rent Control in Cambridge Massachusetts

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  • David H. Autor
  • Christopher J. Palmer
  • Parag A. Pathak

Abstract

Understanding potential spillovers from the attributes and actions of neighborhood residents onto the value of surrounding properties and neighborhoods is central to both the theory of urban economics and the development of efficient housing policy. This paper measures the capitalization of housing market spillovers by studying the sudden and largely unanticipated 1995 elimination of stringent rent controls in Cambridge, Massachusetts that had previously muted landlords' investment incentives and altered the assignment of residents to locations. Pooling administrative data on the assessed values of each residential property and the prices and characteristics of all residential transactions between 1988 and 2005, we find that rent control's removal produced large, positive, and robust spillovers onto the price of never-controlled housing from nearby decontrolled units. Elimination of rent control added about $1.8 billion to the value of Cambridge's housing stock between 1994 and 2004, equal to nearly a quarter of total Cambridge residential price appreciation in this period. Positive spillovers to never-controlled properties account for more half of the induced price appreciation. Residential investments can explain only a small fraction of the total.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18125.

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Date of creation: Jun 2012
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Publication status: published as David H. Autor & Christopher J. Palmer & Parag A. Pathak, 2014. "Housing Market Spillovers: Evidence from the End of Rent Control in Cambridge, Massachusetts," Journal of Political Economy, University of Chicago Press, vol. 122(3), pages 661 - 717.
Handle: RePEc:nbr:nberwo:18125

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References

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  1. Jeremy Bulow & Paul Klemperer, 2012. "Regulated Prices, Rent-Seeking, and Consumer Surplus," Economics Papers 2012-W03, Economics Group, Nuffield College, University of Oxford.
  2. David Genesove & Christopher Mayer, 2001. "Loss Aversion And Seller Behavior: Evidence From The Housing Market," The Quarterly Journal of Economics, MIT Press, vol. 116(4), pages 1233-1260, November.
  3. Yannis Ioannides, 2001. "Interactive Property Valuations," Discussion Papers Series, Department of Economics, Tufts University 0102, Department of Economics, Tufts University.
  4. Frech, H E, III & Lee, William C, 1987. "The Welfare Cost of Rationing-by-Queuing across Markets: Theory and Estimates from the U.S. Gasoline Crises," The Quarterly Journal of Economics, MIT Press, vol. 102(1), pages 97-108, February.
  5. Paul S. Willen & Adam Hale Shapiro & Kristopher Gerardi, 2008. "Subprime Outcomes: Risky Mortgages, Homeownership Experiences, and Foreclosures," 2008 Meeting Papers 345, Society for Economic Dynamics.
  6. Sims, David P., 2007. "Out of control: What can we learn from the end of Massachusetts rent control?," Journal of Urban Economics, Elsevier, vol. 61(1), pages 129-151, January.
  7. Suen, Wing, 1989. "Rationing and Rent Dissipation in the Presence of Heterogeneous Individuals," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1384-94, December.
  8. Olsen, Edgar O, 1972. "An Econometric Analysis of Rent Control," Journal of Political Economy, University of Chicago Press, vol. 80(6), pages 1081-1100, Nov.-Dec..
  9. Richard Arnott, 1995. "Time for Revisionism on Rent Control?," Journal of Economic Perspectives, American Economic Association, vol. 9(1), pages 99-120, Winter.
  10. Pope, Jaren C., 2008. "Fear of crime and housing prices: Household reactions to sex offender registries," Journal of Urban Economics, Elsevier, vol. 64(3), pages 601-614, November.
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  1. “Housing Market Spillovers: Evidence from the End of Rent Control in Cambridge, MA,” D. Autor, C. Palmer & P. Pathak (2014)
    by afinetheorem in A Fine Theorem on 2014-07-31 18:38:07
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Cited by:
  1. Daniel Fetter, 2013. "The Home Front: Rent control and the rapid wartime increase in home ownership," Discussion Papers 13-005, Stanford Institute for Economic Policy Research.
  2. Wong, Maisy, 2013. "Estimating the Distortionary Effects of Ethnic Quotas in Singapore Using Housing Transactions," MPRA Paper 51217, University Library of Munich, Germany.

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