Household allocation and spatial distribution in a market under (“soft”) rent control

Though rent control is widely criticized in academic analyses, it might have some positive effects, and its supporters argue that it promotes social integration in cities. Whether this expectation is empirically supported, however, is rarely analysed. We analyse whether segregation exists in the rental housing market in Stockholm, Sweden, a market under persistent and all-embracing, yet “soft”, rent control. We use segregation measures for the uncontrolled cooperative (multifamily) housing segment as benchmarks for analysing whether rent control counteracts segregation. Furthermore, we compare segregation estimates for two categories of landlords in the rent-controlled segment, i.e., municipal housing corporations and private property-owning corporations. Stockholm is a mono-centric metropolitan area and our analyses are conducted within a standard urban economic framework following Alonso. We apply the analyses to a rich dataset encompassing some 400,000 households. In the free-market segment, household income is expected to decrease with distance from the city centre, whereas a less pronounced (or even flat) geographical income gradient in the controlled segment would indicate a less segregated market with respect to this variable. We find that income segregation is significantly lower in the rent control segment than in the free market benchmark. However, when analysing segregation with respect to ethnicity, education level, age, and number of children, the rental housing market in Stockholm is more segregated in these respects than is the non-regulated market for cooperatives.