TY - JOUR

T1 - Rent Control, Market Segmentation, and Misallocation: Causal Evidence from a Large-Scale Policy Intervention

AU - Mense, Andreas

AU - Michelsen, Claus

AU - Kholodilin, Konstantin A.

PY - 2023/3

Y1 - 2023/3

N2 - This paper studies market segmentation that arises from the introduction of rent control. When a part of the market remains unregulated, theory predicts an increase of free-market rents due to the misallocation of households to dwellings. To document this mechanism empirically, we study a large-scale policy intervention in the German housing market. We isolate the misallocation mechanism by exploiting temporal variation in treatment dates in an event study design. We find a robust positive spillover effect of rent control on free-market rents. Moreover, mobility of renters living in rent-controlled units decreased. [91 words]

AB - This paper studies market segmentation that arises from the introduction of rent control. When a part of the market remains unregulated, theory predicts an increase of free-market rents due to the misallocation of households to dwellings. To document this mechanism empirically, we study a large-scale policy intervention in the German housing market. We isolate the misallocation mechanism by exploiting temporal variation in treatment dates in an event study design. We find a robust positive spillover effect of rent control on free-market rents. Moreover, mobility of renters living in rent-controlled units decreased. [91 words]

KW - Economics

KW - Misallocation

KW - Price controls

KW - Rent control

KW - Spillovers

U2 - 10.1016/j.jue.2022.103513

DO - 10.1016/j.jue.2022.103513

M3 - Journal articles

VL - 134

JO - Journal of Urban Economics

JF - Journal of Urban Economics

SN - 0094-1190

M1 - 103513

ER -