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Price regulation, inflation, and nominal rigidity in housing rents

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  • O’Toole, Conor
  • Martinez-Cillero, Maria
  • Ahrens, Achim

Abstract

In this paper, we explore the impact of a 4 per cent inflation control on price changes for rental contracts in Ireland. Testing across the price distribution, we explore the cap’s impact on the share of the market experiencing: 1) a price decline; 2) unchanged rents (nominal rigidity); 3) a positive growth rate below the cap; 4) the maximum allowable growth (4%); and 5) growth above the cap. Our identification strategy uses a contiguous border difference-in-difference approach on a novel property-level tenancy panel. We find the overall rent growth rate fell by 1–2 percentage points following the regulations. However, we find different impacts across the distribution: not all high growth rates converged to the cap as the distribution generally shifted to the left and nominal rigidity rose. Furthermore, we find some inflationary pressures on rents that previously were unchanged as landlords priced up to the cap. Heterogeneous effects by company or household landlord are evident.

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  • 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).
    • Handle: RePEc:eee:jhouse:v:52:y:2021:i:c:s1051137721000218
    DOI: 10.1016/j.jhe.2021.101769
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    Cited by:

    1. Cathal Coffey & Kieran McQuinn & Conor O'Toole, 2022. "Rental equivalence, owner‐occupied housing, and inflation measurement: Microlevel evidence from Ireland," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(4), pages 990-1021, December.
    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. 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).
    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.
    5. O'Toole, Conor & Slaymaker, Rachel & McQuinn, Kieran & Coffey, Cathal & Eoin Corrigan, 2020. "Exploring the short-run implications of the COVID-19 pandemic on affordability in the Irish private rental market," Research Series, Economic and Social Research Institute (ESRI), number RS108.

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    More about this item

    Keywords

    Rent control; Nominal rigidity; Price stickiness; Ireland;
    All these keywords.

    JEL classification:

    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R28 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Government Policy
    • 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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