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Rent control and rental prices: High expectations, high effectiveness?

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  • Breidenbach, Philipp
  • Eilers, Lea
  • Fries, Jan

Abstract

This paper evaluates the rent control policy implemented in Germany in 2015. Like many countries around the world, German cities and metropolitan areas have experienced a strong increase in rental prices during the last decade. In response, the politicians aimed to dampen the rise in rental prices by limiting the landlords' freedom to increase rents for new contracts. To that end, the rent control was introduced. To evaluate the effectiveness of the rent control with respect to rental prices, we take advantage of its restricted scope of application. First, it is applied only in a selected number of municipalities, thereby generating regional variation. Second, the condition of rental objects generates an additional dimension of variation since new and modernised objects are exempt from rent control. Based on data for rental offers in Germany, we apply a triple-difference framework with regionspecific time trends as well as flat type-specific ones. Despite the high political expectations, our estimates indicate that the German rent control dampens rental price by only 2.5%. This effect varies across object characteristics and seems to be larger for lower-quality dwellings and in the lower price segment. Nevertheless, the application of an event-study indicates that these effects are not persistent over time.

Suggested Citation

  • Breidenbach, Philipp & Eilers, Lea & Fries, Jan, 2019. "Rent control and rental prices: High expectations, high effectiveness?," Ruhr Economic Papers 804, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:804
    DOI: 10.4419/86788932
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    1. Christian Dustmann & Bernd Fitzenberger & Markus Zimmermann, 2022. "Housing Expenditure and Income Inequality," The Economic Journal, Royal Economic Society, vol. 132(645), pages 1709-1736.
    2. 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.
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    4. Mense, Andreas & Michelsen, Claus & Cholodilin, Konstantin A., 2017. "Empirics on the causal effects of rent control in Germany," FAU Discussion Papers in Economics 24/2017, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.
    5. Thomschke, Lorenz, 2016. "Distributional price effects of rent controls in Berlin: When expectation meets reality," CAWM Discussion Papers 89, University of Münster, Münster Center for Economic Policy (MEP).
    6. Rebecca Diamond & Tim McQuade & Franklin Qian, 2019. "The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco," American Economic Review, American Economic Association, vol. 109(9), pages 3365-3394, September.
    7. 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.
    8. Deschermeier, Philipp & Seipelt, Björn & Voigtländer, Michael, 2017. "Evaluation der Mietpreisbremse," IW policy papers 5/2017, Institut der deutschen Wirtschaft (IW) / German Economic Institute.
    9. Boelmann, Barbara & Schaffner, Sandra, 2018. "FDZ data description: Real-estate data for Germany (RWI-GEO-RED). Advertisements on the internet platform ImmobilienScout24," RWI Projektberichte, RWI - Leibniz-Institut für Wirtschaftsforschung, number 195940.
    10. Konstantin A. Kholodilin & Andreas Mense & Claus Michelsen, 2016. "Die Mietpreisbremse wirkt bisher nicht," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 83(22), pages 491-499.
    11. Gyourko, Joseph & Linneman, Peter, 1989. "Equity and efficiency aspects of rent control: An empirical study of New York City," Journal of Urban Economics, Elsevier, vol. 26(1), pages 54-74, July.
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    Cited by:

    1. Bofinger, Peter & Feld, Lars P. & Schmidt, Christoph M. & Schnabel, Isabel & Wieland, Volker, 2018. "Vor wichtigen wirtschaftspolitischen Weichenstellungen. Jahresgutachten 2018/19 [Setting the Right Course for Economic Policy. Annual Report 2018/19]," Annual Economic Reports / Jahresgutachten, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, volume 127, number 201819.
    2. Alexander Daminger, 2021. "Subsidies to Homeownership and Central City Rent," Working Papers 210, Bavarian Graduate Program in Economics (BGPE).
    3. O’Toole, Conor & Martinez-Cillero, Maria & Ahrens, Achim, 2021. "Price regulation, inflation, and nominal rigidity in housing rents," Journal of Housing Economics, Elsevier, vol. 52(C).
    4. Coffey, Cathal & Hogan, Paul J. & McQuinn, Kieran & O'Toole, Conor & Slaymaker, Rachel, 2022. "Rental inflation and stabilisation policies: international evidence and the Irish experience," Research Series, Economic and Social Research Institute (ESRI), number RS136, June.
    5. Stephan L. Thomsen & Daniel Vogt & Lars Brausewetter, 2020. "Mietwohnungsknappheit in Deutschland: Ursachen, Instrumente, Implikationen [Shortage of Rental Housing in Germany: Causes, Instruments, Implications]," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 100(6), pages 461-467, June.
    6. Thomsen, Stephan L & Vogt, Daniel & Brausewetter, Lars, 2019. "Wohnungsmarkt und Wohnungspolitik in Deutschland: Situation und Optionen," Hannover Economic Papers (HEP) dp-658, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    7. Baye, Vera & Dinger, Valeriya, 2022. "Investment Incentives of Rent Controls and Gentrification - Evidence from German Micro Data," VfS Annual Conference 2022 (Basel): Big Data in Economics 264120, Verein für Socialpolitik / German Economic Association.

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    More about this item

    Keywords

    rental prices; rent control; regional variation; regulation; diff-in-diff-in-diff; event study;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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