Measuring the Value of Rent Stabilization and Understanding its Implications for Racial Inequality: Evidence from New York City

Abstract

Rent stabilization is valuable to occupying tenants because it limits rent growth. Assessing the rent discount implied by this policy is challenging because the counterfactual rents that rent-stabilized units would command in the unregulated market are unobservable. Using novel data from 2002 to 2017, we estimate the counterfactual rent and predict the quality-adjusted rent discount for each rent-stabilized unit in New York City (NYC). Results are notably robust to different empirical models, including propensity score and repeated rents with a panel of deregulated units. We find mean rent discounts of $410 per month ($4,920 per year), corresponding to 34% of the mean contract rents of rent-stabilized units. The aggregate size of the rent discounts in NYC is between 4 to 5.4 billion USD per year, roughly 10-14% of the federal budget on means-tested housing programs. Furthermore, we document the following stylized facts: (1) the value of rent stabilization increases linearly with housing tenure; (2) rent stabilization is not progressive; (3) rent discounts are consistently larger in Manhattan and increasing in neighborhoods with gentrification. Finally, we apply the estimated rent discounts to analyze racial inequality in the access to these benefits. We find that rent stabilization has disproportionately benefited White tenants. However, this gap has closed in recent years.

Keywords: Rent Stabilization, Rent Regulation, Hedonic Pricing, Policy Incidence, Racial Inequality

JEL Classification: R28, J15, H75, L51