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Inflation and Rental Markets: Theory and Evidence from a Rent-Controlled System

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Abstract

How do rental markets shape inflation? In many countries, new leases follow the market, while ongoing rents rise only with inflation. Longterm tenants therefore pay less than newcomers – a “tenure discount.” This paper builds a simple model of this two-tier system and tests it with Austrian data (2005–2024). It shows how contract length and indexation rules make rent inflation persistent and how they drive inflation in both the short and long run.

Suggested Citation

  • Markus Knell, 2026. "Inflation and Rental Markets: Theory and Evidence from a Rent-Controlled System," Working Papers 282, Oesterreichische Nationalbank (Austrian Central Bank).
    • Handle: RePEc:onb:oenbwp:282
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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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