Priced-Out: Rent Control, Wages, and Inequality

Abstract

We show that after a quasi-exogenous loss of rent control in Portugal, low-income workers’ earnings decline significantly. High-income workers are unaffected, despite both being equally likely to migrate outside the city. We further show that the wage decline stems from transitions to lower-quality jobs outside the city, which we connect to relatively high commuting costs for low-income workers. In particular, the negative impact on wages is driven by individuals who do not own a personal vehicle and rely on public transit for commuting. We explore alternative policies through the lens of a quantitative commuting model with rent control. Our counterfactual analysis examines housing voucher policies, including a recent policy introduced by the Portuguese government. Relative to rent control, housing vouchers reduce taxation on landlords and reduce regional inequality among low-income workers, but only replicate low-income workers’ welfare gains if they do not impose implicit mobility restrictions.

Keywords: Rent control, wages, inequality, labor markets, housing affordability, public transportation, migration

JEL Classification: J21, J22, J24, J31, J61, R23, R31, R41, R48