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Investment incentives of rent controls and gentrification: Evidence from German micro data

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  • Vera Baye
  • Valeriya Dinger

Abstract

We empirically document that the effectiveness of the German rent control introduced in 2015 in achieving rental housing affordability is limited. Exploring the reasons for this limited effectiveness, we focus on the impact of the rent control on the yield on rental housing investments proxied by rent‐price ratios, which we derive by predicting sale prices to rental objects based on a hedonic model using micro‐level quotes on rental and sale listing. Exploiting the temporal, regional, and object‐specific variation generated by the design of the rent control, we identify a causal negative effect of the rent control on the yield of rental objects subject to the regulation. Furthermore, we zoom into the spillovers across regulated objects and objects in the affected markets that were exempt from the regulation and find rising yields for the exempted objects, suggesting that the regulation contributed to gentrification via a shift of rental housing supply away from the regulated segment.

Suggested Citation

  • Vera Baye & Valeriya Dinger, 2024. "Investment incentives of rent controls and gentrification: Evidence from German micro data," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 52(3), pages 843-884, May.
    • Handle: RePEc:bla:reesec:v:52:y:2024:i:3:p:843-884
    DOI: 10.1111/1540-6229.12478
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    1. Kholodilin, Konstantin A., 2024. "Rent control effects through the lens of empirical research: An almost complete review of the literature," Journal of Housing Economics, Elsevier, vol. 63(C).
    2. Konstantin A. Kholodilin, 2022. "Rent Control Effects through the Lens of Empirical Research: An almost Complete Review of the Literature," Discussion Papers of DIW Berlin 2026, DIW Berlin, German Institute for Economic Research.
    3. Konstantin A. Kholodilin, 2025. "The Impact of Governmental Regulations on Housing Market: Findings of a Meta-Study of Empirical Literature," Discussion Papers of DIW Berlin 2113, DIW Berlin, German Institute for Economic Research.

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    More about this item

    JEL classification:

    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General

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