How does abolishment of rent control affect returns on residential investments in the long run?

Abstract

Abolishment of rent control in residential market is seen as one of the solution to Swedish housing shortage. Politicians believe that it will provide higher incentives for investors and property companies to construct more rental housing and to stabilize property prices in the long-run.The aim of the study is to find out if the abolishment of rent control in housing market leads to more residential investments and more stable returns on it in the long run.The method is a comparative analysis of returns on residential investments in two case countries - with and without rent control - Sweden and Finland. Data covers the time period of 2000-2015 and include total, capital and income return on residential investments from Property databank in Sweden and Finland. The study considers the effects of abolishment of rental regulations on residential market with control for changes in fundamental variables like GDP, income, population growth, dwelling stock and interest rate.The results of the study demonstrate that abolishment of rent control leads to more stable total returns on residential investments in the long run. It also leads to higher level of income return and less fluctuation in capital return in the long run.