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Empirics on the causal effects of rent control in Germany

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  • Mense, Andreas
  • Michelsen, Claus
  • Kholodilin, Konstantin

Abstract

This paper analyzes empirically the effects of a second generation rent control. We investigate the consequences of an uncommon policy intervention in the German housing market in 2015. We rely on a difference-and-differences setup, augmented with elements of a discontinuity-in-time design, to identify the causal impact of rent control on controlled and uncontrolled prices, land values, and the short-run supply of (rental) housing. We exploit an exception for newly built units and compare these units to young regulated units in order to measure the relative effect of the regulation on these groups. We are able to decompose this total effect into a negative effect on regulated and a positive effect on unregulated units, by exploiting spatio-temporal variation in treatment and the _ne-grained temporal variation of the data. We document positive effects on rents and prices of unregulated units and negative effects on regulated units. Intra-market variation is not available for identifying effects on land values and supply. We thus use propensity score weighting and trimming for selecting comparable treatment and control units. We find a robust positive impact of the regulation on land values that is qualitatively and quantitatively in line with the results for rents. We then document that the rent control regime led to more demolitions of small residential units (single- and two-family homes demolished with the purpose of making room for a new residential building), but we do not find an effect for larger buildings. We take this as a first sign of positive long-run supply effects. We also provide evidence that landlords more often chose to sell rather than let vacant rental units and that maintenance effort decreased under rent control. Overall, these results _t the predictions of a standard comparative-static representation of a second-generation rent control, which sheds a more favorable light on rent control.

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  • Mense, Andreas & Michelsen, Claus & Kholodilin, Konstantin, 2018. "Empirics on the causal effects of rent control in Germany," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181625, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc18:181625
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    Cited by:

    1. Lars Vandrei, 2018. "Does Regulation Discourage Investors? Sales Price Effects of Rent Controls in Germany," ifo Working Paper Series 262, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    2. 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.
    3. Tomaso Duso & Claus Michelsen & Maximilian Schäfer & Kevin Ducbao Tran, 2021. "Airbnb and Rental Markets: Evidence from Berlin," Bristol Economics Discussion Papers 21/746, School of Economics, University of Bristol, UK.
    4. Bricongne, Jean-Charles & Meunier, Baptiste & Pouget, Sylvain, 2023. "Web-scraping housing prices in real-time: The Covid-19 crisis in the UK," Journal of Housing Economics, Elsevier, vol. 59(PB).
    5. Alexander Daminger, 2021. "Subsidies to Homeownership and Central City Rent," Working Papers 210, Bavarian Graduate Program in Economics (BGPE).
    6. Breidenbach, Philipp & Eilers, Lea & Fries, Jan, 2022. "Temporal dynamics of rent regulations – The case of the German rent control," Regional Science and Urban Economics, Elsevier, vol. 92(C).
    7. Lars Vandrei, 2018. "Lars Vandrei," ifo Dresden berichtet, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 25(06), pages 12-15, December.
    8. 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).
    9. Hinrichsen, Julius & Nitt-Drießelmann, Dörte & Wellenreuther, Claudia & Wolf, André, 2021. "Der Eigentumsbegriff in den Parteiprogrammen zur Bundestagswahl 2021: Eine ökonomische Analyse," HWWI Policy Papers 133, Hamburg Institute of International Economics (HWWI).
    10. Konstantin A. Kholodilin & Fernando A. López & David Rey Blanco & Pelayo González Arbués, 2022. "Lessons from an Aborted Second-Generation Rent Control in Catalonia," Discussion Papers of DIW Berlin 2008, DIW Berlin, German Institute for Economic Research.
    11. Friedrich Breyer & Nicole Hoffmeister-Kraut & Matthias Wrede & Harald Simons & Lars Vandrei & Theresia Theurl & Ralph Henger & Konstantin Kholodilin & Sebastian Kohl, 2018. "Failure of social housing policy: How to create affordable housing?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 71(21), pages 03-30, November.
    12. Anja M. Hahn & Konstantin A. Kholodilin & Sofie R. Waltl, 2020. "Forward to the Past: Short-Term Effects of the Rent Freeze in Berlin," Department of Economics Working Papers wuwp308, Vienna University of Economics and Business, Department of Economics.
    13. Tomaso Duso & Claus Michelsen & Maximilian Schäfer & Kevin Ducbao Tran, 2020. "Airbnb and Rents: Evidence from Berlin," Discussion Papers of DIW Berlin 1890, DIW Berlin, German Institute for Economic Research.
    14. Koetter, Michael & Marek, Philipp & Mavropoulos, Antonios, 2021. "Real estate transaction taxes and credit supply," Discussion Papers 04/2021, Deutsche Bundesbank.
    15. Raya, Josep Maria & Torres-Pruñonosa, Jose, 2022. "The importance of administrative data in the evaluation of the incidence of social housing allowance programmes," Evaluation and Program Planning, Elsevier, vol. 94(C).
    16. Konstantin A. Kholodilin & Sebastian Kohl, 2020. "Does Social Policy through Rent Controls Inhibit New Construction? Some Answers from Long-Run Historical Evidence," Discussion Papers of DIW Berlin 1839, DIW Berlin, German Institute for Economic Research.

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    More about this item

    Keywords

    Housing policy; rent control; rental housing; Germany;
    All these keywords.

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • 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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