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The Economics of Tenancy Rent Control

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  • Basu, Kaushik
  • Emerson, Patrick M

Abstract

We consider a rent control regime where rent increases on, and eviction of, a sitting tenant are forbidden. When apartments become vacant landlords may negotiate new rents. If inflation exists, landlords prefer to rent to short-staying tenants. Since departure-date-contingent contracts are forbidden and landlords cannot tell whether tenants are short-stayers, an adverse selection problem arises, with a Pareto inefficient equilibrium. When tenant types are determined endogenously, multiple equilibria can arise where one equilibrium is Pareto dominated. Abolition of the rent control regime, cannot only shift the equilibrium out of this inferior outcome, but also result in across-the-board lowering of rents.

Suggested Citation

  • Basu, Kaushik & Emerson, Patrick M, 2000. "The Economics of Tenancy Rent Control," Economic Journal, Royal Economic Society, vol. 110(466), pages 939-962, October.
  • Handle: RePEc:ecj:econjl:v:110:y:2000:i:466:p:939-62
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    References listed on IDEAS

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    1. Epple, Dennis, 1998. "Rent control with reputation: theory and evidence," Regional Science and Urban Economics, Elsevier, vol. 28(6), pages 679-710, November.
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    Cited by:

    1. Konstantin A. Kholodilin & Julien Licheron, 2017. "Macroeconomic Effects of Rental Housing Regulations: The Case of Germany in 1950-2015," Discussion Papers of DIW Berlin 1649, DIW Berlin, German Institute for Economic Research.
    2. Enström Öst, Cecilia & Söderberg, Bo & Wilhelmsson, Mats, 2014. "Household allocation and spatial distribution in a market under (“soft”) rent control," Journal of Policy Modeling, Elsevier, vol. 36(2), pages 353-372.
    3. World Bank, 2007. "India - Land Policies for Growth and Poverty Reduction," World Bank Other Operational Studies 7818, The World Bank.
    4. Otani, Kiyoshi, 2006. "The Coase theorem in tenant protection," Journal of Economic Behavior & Organization, Elsevier, vol. 61(3), pages 487-503, November.
    5. Le Blanc, David, 2005. "Economic evaluation of housing subsidy systems: a methodology with application to Morocco," Policy Research Working Paper Series 3529, The World Bank.
    6. Ballesteros, Marife M. & Magtibay, Jasmine E. & Ramos, Tatum P., 2016. "Rent Control in the Philippines: An Update," Discussion Papers DP 2016-40, Philippine Institute for Development Studies.
    7. Juan S. Mora-Sanguinetti, 2011. "The Regulation of Residential Tenancy Markets in Post-War Western Europe: An Economic Analysis," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 8(1), pages 47-75, June.
    8. Blair Jenkins, 2009. "Rent Control: Do Economists Agree?," Econ Journal Watch, Econ Journal Watch, vol. 6(1), pages 73-112, January.
    9. World Bank, 2007. "India : Land Policies for Growth and Poverty Reduction," World Bank Publications, The World Bank, number 15791, July.
    10. Arnott, Richard & Shevyakhova, Elizaveta, 2014. "Tenancy rent control and credible commitment in maintenance," Regional Science and Urban Economics, Elsevier, vol. 47(C), pages 72-85.
    11. McFarlane, Alastair, 2003. "Rent stabilization and the long-run supply of housing," Regional Science and Urban Economics, Elsevier, vol. 33(3), pages 305-333, May.
    12. Bernd Fitzenberger & Benjamin Fuchs, 2017. "The Residency Discount for Rents in Germany and the Tenancy Law Reform Act 2001: Evidence from Quantile Regressions," German Economic Review, Verein für Socialpolitik, vol. 18(2), pages 212-236, May.
    13. Kapoor, Mudit & le Blanc, David, 2008. "Measuring risk on investment in informal (illegal) housing: Theory and evidence from Pune, India," Regional Science and Urban Economics, Elsevier, vol. 38(4), pages 311-329, July.
    14. Lawrence B. Smith, 2003. "Intertenancy Rent Decontrol in Ontario," Canadian Public Policy, University of Toronto Press, vol. 29(2), pages 213-225, June.
    15. Krol, Robert & Svorny, Shirley, 2005. "The effect of rent control on commute times," Journal of Urban Economics, Elsevier, vol. 58(3), pages 421-436, November.
    16. repec:ebl:ecbull:eb-17-00777 is not listed on IDEAS
    17. Bennett, John & Dixon, Huw & Hu, Helen X.Y., 2013. "The transition from dual-track pricing to a market system: Winners and losers," Economic Systems, Elsevier, vol. 37(1), pages 30-44.
    18. Reichelt, Malte & Haas, Anette, 2015. "Commuting farther and earning more? : how employment density moderates workers commuting distance," IAB Discussion Paper 201533, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    19. Deininger, Klaus & Jin, Songqing & Nagarajan, Hari K., 2008. "Efficiency and equity impacts of rural land rental restrictions: Evidence from India," European Economic Review, Elsevier, vol. 52(5), pages 892-918, July.
    20. Jin, Songqing & Deininger, Klaus W. & Nagarajan, Hari K., 2006. "Equity and efficiency impacts of rural land rental restrictions: Evidence from India," 2006 Annual meeting, July 23-26, Long Beach, CA 21305, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    21. Anette Haas & Malte Reichelt, 2015. "Larger pay, longer drives? Location specific wage effects on commuting distances," ERSA conference papers ersa15p1139, European Regional Science Association.
    22. Alastair McFarlane, 2001. "Rent stabilization and the long-run supply of housing," Urban/Regional 0109001, EconWPA.
    23. Randal Verbrugge & Robert Poole, 2010. "Explaining the Rent–OER Inflation Divergence, 1999–2007," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 38(4), pages 633-657, Winter.
    24. Robert Poole & Randal Verbrugge, 2007. "Explaining the Rent-OER Inflation Divergence, 1999-2006," Working Papers 410, U.S. Bureau of Labor Statistics.

    More about this item

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • K10 - Law and Economics - - Basic Areas of Law - - - General (Constitutional Law)
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • 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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