Does Social Policy through Rent Controls Inhibit New Construction? Some Answers from Long-Run Historical Evidence

30 Pages Posted: 14 Jan 2020

See all articles by Konstantin A. Kholodilin

Konstantin A. Kholodilin

German Institute for Economic Research (DIW Berlin)

Sebastian Kohl

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for the Study of Societies

Date Written: January 2020

Abstract

The (re-)introduction of rent regulation in the form of rent controls, tenant protection or supply rationing is back on the agenda of policymakers in light of rent inflation in many global cities. While rent control as social policy promises short-term relief, economists point to their negative long-run effects on new construction. This paper present long-run data on both rent regulation and housing construction for 16 developed countries (1910-2017) and 44 developing countries since the 1980s to confirm the economists’ view generally, albeit with certain reservations. The negative effect of regulation can be offset by exemptions for new construction, by compensating government construction and by a flight of new construction into the owner-occupied sector. The overall magnitude of the effect is therefore not as high as expected and shows non-linearities. But, although rent control is usually introduced with good social-policy intentions, it generally risks to crowd out its object of regulation through inhibiting new construction.

Keywords: Residential construction, rent control, tenure security, housing rationing, panel data model

JEL Classification: C23, O18, R38

Suggested Citation

Kholodilin, Konstantin A. and Kohl, Sebastian, Does Social Policy through Rent Controls Inhibit New Construction? Some Answers from Long-Run Historical Evidence (January 2020). DIW Berlin Discussion Paper No. 1839. Available at SSRN: https://ssrn.com/abstract=3518332 or http://dx.doi.org/10.2139/ssrn.3518332

Konstantin A. Kholodilin (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Sebastian Kohl

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for the Study of Societies ( email )

Paulstr. 3
50676 Koln
Germany

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