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The Misallocation of Housing Under Rent Control

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  • Edward L. Glaeser
  • Erzo F. P. Luttmer

Abstract

When there are binding price controls, there are shortages and the allocation of goods across consumers may not be efficient. In general, the misallocation costs of price controls are first order, while the classic welfare losses due to undersupply are second order. This paper presents an empirical methodology for estimating the degree of misallocation of housing units due to rent control in New York City. This methodology involves comparing the relative consumption of different demographic groups within the rent controlled area with the relative levels of consumption in a free market area. Our best estimate of the costs of rent control in New York due to the misallocation of rental apartments is 200 dollars per apartment annually.

Suggested Citation

  • Edward L. Glaeser & Erzo F. P. Luttmer, 1997. "The Misallocation of Housing Under Rent Control," NBER Working Papers 6220, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:6220
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    References listed on IDEAS

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    1. Barzel, Yoram, 1974. "A Theory of Rationing by Waiting," Journal of Law and Economics, University of Chicago Press, vol. 17(1), pages 73-95, April.
    2. Cheung, Steven N S, 1974. "A Theory of Price Control," Journal of Law and Economics, University of Chicago Press, vol. 17(1), pages 53-71, April.
    3. Edward L. Glaeser & Erzo F. P. Luttmer, 2003. "The Misallocation of Housing Under Rent Control," American Economic Review, American Economic Association, vol. 93(4), pages 1027-1046, September.
    4. James Heckman & Jose Scheinkman, 1987. "The Importance of Bundling in a Gorman-Lancaster Model of Earnings," Review of Economic Studies, Oxford University Press, vol. 54(2), pages 243-255.
    5. Gyourko, Joseph & Linneman, Peter, 1989. "Equity and efficiency aspects of rent control: An empirical study of New York City," Journal of Urban Economics, Elsevier, vol. 26(1), pages 54-74, July.
    6. Richard Arnott, 1995. "Time for Revisionism on Rent Control?," Journal of Economic Perspectives, American Economic Association, vol. 9(1), pages 99-120, Winter.
    7. Mark Frankena, 1975. "Alternative Models of Rent Control," Urban Studies, Urban Studies Journal Limited, vol. 12(3), pages 303-308, October.
    8. Suen, Wing, 1989. "Rationing and Rent Dissipation in the Presence of Heterogeneous Individuals," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1384-1394, December.
    9. Deacon, Robert T & Sonstelie, Jon, 1989. "The Welfare Costs of Rationing by Waiting," Economic Inquiry, Western Economic Association International, vol. 27(2), pages 179-196, April.
    10. Olsen, Edgar O, 1972. "An Econometric Analysis of Rent Control," Journal of Political Economy, University of Chicago Press, vol. 80(6), pages 1081-1100, Nov.-Dec..
    11. Edward L. Glaeser, 1996. "The Social Costs of Rent Control Revisted," Harvard Institute of Economic Research Working Papers 1747, Harvard - Institute of Economic Research.
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    More about this item

    JEL classification:

    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing

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