India’s housing vacancy paradox: How rent control and weak contract enforcement produce unoccupied units and a housing shortage at the same time

Abstract

One housing paradox in many markets is the simultaneous presence of high costs and high vacancy. For example, India has expensive housing relative to incomes and an urban housing vacancy rate of 12.4%. We look at three possible explanations: pro-tenant rent control laws, poor contract enforcement, and under-provision of public goods. We find that pro-tenant laws are positively related to vacancy rates. A one standard deviation move towards pro-tenant rent control variables increases vacancy by 4.1 percentage points. Contract enforcement measured by density of judges is negatively related to vacancy and under-provision of public goods has no relationship.