PARIS2019: The impact of rent control on the Parisian rental market

PurposeThe purpose of this paper is to analyze the effects of Swedish rent controls on observed vacancy rates for rental housing.Design/methodology/approachHousing vacancy rates are unevenly distributed among Swedish municipalities. In large expansive municipalities, such as Malmö, Göteborg and Stockholm, vacancy rates are very low, while in declining or smaller municipalities such as those in the northern and interior parts of Sweden, vacancy rates are considerably higher. This implies welfare losses not only in growing municipalities with queues for rental apartments but also in municipalities that are shrinking since the controlled rents there are higher than market rents and cause higher vacancy rates than with market rents. The authors estimate the influences of various determining factors, such as population growth, population size, rent levels, construction, demolition and market orientation of rents, on the observed vacancy rates.FindingsThe authors find that that these factors affect the vacancy rates differently depending on whether a municipality is large or small, growing or shrinking. Population growth, in percent per year, plays an important role in explaining the observed vacancy rates in declining regions.Research limitations/implicationsA research task that remains to be done is to calculate the welfare losses due to rent higher than the market rent for municipalities in contraction.Practical implicationsTo reduce the welfare losses of rent control, both in expanding and contracting municipalities, economists' straightforward recommendation to deregulate the rent control should, in principle, be carried out.Originality/valueIn many countries, rent control regulations are limited to cities, such as New York City. The paper shows that the Swedish rent control system however, applies nationwide, except for annual rent increases, which are set locally through negotiation.

What stirs most people against rent control laws in the United States and elsewhere are stories of people who have held apartments for many years and now pay absurdly low rents for them. There are important reasons for removing rent controls, but the shock value of a low rent is not one of them. Basu and Emerson construct a model of second-generation rent control, describing a regime that does not permit rent increases for sitting tenants - or their eviction. When an apartment becomes vacant, however, the landlord is free to negotiate a new contract with a higher rent. They argue that this stylized system is a good (though polar) approximation of rent control regimes that exist in many cities in India, the United States, and elsewhere. Under such a regime, if inflation exists, landlords prefer to rent to tenants who plan to stay only a short time. The authors assume that there are different types of tenants (where type refers to the amount of time tenants stay in an apartment) and that landlords are unable to determine types before they rent to a tenant. Contracts contingent on departure date are forbidden, so a problem of adverse selection arises. Short stayers are harmed by rent control while long-term tenants benefit. In addition, the equilibrium is Pareto inefficient. Basu and Emerson show that when tenant types are determined endogenously (when a tenant decides how long to stay in one place based on market signals) in the presence of rent control, there may be multiple equilibria, with one equilibrium Pareto-dominated by another. In other words, many lifestyle choices are made based on conditions in the rental housing market. One thing rent control may do is decrease the mobility of the labor force, because tenants may choose to remain in a city where they occupy rent-controlled apartments rather than accept a higher-paying job in another city. Basu and Emerson show that abolishing the rent control regime can do two things: Shift the equilibrium to a better outcome and result in lower rents, across the board. A version of this paper - a product of the Office of the Senior Vice President and Chief Economist, Development Economics - was presented at an Applied Microeconomics Workshop at Cornell University.

During the past decade, over 200 cities in the United States have imposed rent control [Baird, t980, pp. 54-7]. Although most likely a response to the accelerating inflation of the 1970's, this second generation of rent control has been justified on the grounds of the existence of a housing crisis. In different locales the crises are described variously as arising from a housing shortage, low vacancy rates, rent increases, tenant hardship, housing deterioration, lack of new construction, or environmental necessity [Baar and Keating, 1975, p. 490]. Invariably, newly enacted rent control ordinances are presented as temporary measures. Presumably, policymakers view the imposition of rent control and its concomitant effects as reversible after the housing crisis, however defined, has passed. But is this assumption correct? Does decontrol restore market rents, maintenance levels, optimal crowding, and tenant mobility? Or are housing units permanently altered by virtue of their having been under rent controls? These are important issues in evaluating rent control as a feature of local housing policy. Surprisingly little empirical work has been done on the relationship between rent control and housing quality, crowding, and tenant turnover. Furthermore, the authors have found no empirical studies dealing with decontrol. The purpose of this paper is to make a modest contribution to understanding the efficacy of decontrol by exploring the effects of selective decontrol in New York City (NYC). The data used in this study are taken from the 1968 Special NYC Housing

We exploit quasi-experimental variation in assignment of rent control to study its impacts on tenants, landlords, and the overall rental market. Leveraging new data tracking individuals’ migration, we find rent control increased renters’ probabilities of staying at their addresses by nearly 20%. Landlords treated by rent control reduced rental housing supply by 15%, causing a 5.1% city-wide rent increase. Using a dynamic, neighborhood choice model, we find rent control offered large benefits to covered tenants. Welfare losses from decreased housing supply could be mitigated if insurance against rent increases were provided as government social insurance, instead of a regulated landlord mandate.

The paper analyzes the present rent control system in Sweden in order to assess the distributional and dynamic effects of a rent control lift. The study focuses on the shift in demand for dwellings of different sizes. Interaction with other sectors on the housing market is excluded. The study is limited to the Stockholm region, where clear effects are anticipated. The rent control debate Even if the introduction of the new rent control system ('bruksv~irdespr6vning' or fair rent system) has meant a move towards market rents, there is still an excess demand for older and centrally located dwellings. There is also a small surplus demand for newer dwellings, including those located in the suburbs. The reason is a general shortage of dwellings at the current controlled rent levels. The underlying problem is spatial imbalance, implying too low rents in central locations.

The state of development of rental markets as a genuine alternative to home-ownership stands out as a particularly relevant institutional factor shaping the outcome of the housing market and playing a balancing role and alleviating house price pressures. This is especially the case when it proves to be an affordable platform for young and low-income households, providing them with a viable alternative to a hasty first step into the property ladder. In order to help policymakers develop a sizeable private rental market acting as an attenuating factor of housing prices volatility, it is important to depict the relevant dimensions of the rental market regulation and assess their likely impact on the aggregate housing market. Against this background, this paper first develops a two-dimensional indicator on rental market regulation, covering for rent controls and the tenant-landlord relationship. The resulting indices are put to the test by assessing their impact on housing prices. According to this analysis, an efficient, fair and swift judicial system appears as a necessary step towards unlocking rental markets full potential. Moreover, rent controls appear to have a significant destabilizing impact on the aggregate housing market, increasing the volatility of house prices when confronted with different shocks. Finally, qualitative aspects of the tenancy contract negotiation do not have a first-hand impact on housing market dynamics.

This paper critically examines the widely spread myths of ‘mom-and-pop’ and ‘vulnerable landlords’ within the Spanish rental market, by exploring their role in legitimising rent extraction and opposing rent control measures. Amid rising rental prices and increasing tenant impoverishment in the wake of the 2008 financial crisis, this study addresses how these landlord archetypes distort public and political discourse, thereby influencing rental market regulations. We debunk these myths by conducting a critical analysis of statistical categorisation and available evidence. Our findings reveal that landlords in Spain, rather than being predominantly small-scale, financially vulnerable individuals, represent a small minority who are among the higher income earners and are typically multi-property landlords benefitting substantially from the rental market. We therefore argue that the main goal of the discourses conveyed by the prevalent myths regarding landlords is to obscure the actual socioeconomic structure of the rental market and to preserve it as is. These myths serve to shield the interests of the capitalist class by presenting their objectives as aligned with broader societal needs, which we interpret here according to the Gramscian notion of ‘hegemony’. We conclude that, as rental housing continues to expand as a key means of capital accumulation, these discourses will intensify and will acquire greater political centrality. Revealing these contradictions therefore becomes crucial to delegitimising existing rental structures and advocating for rental regulation.

Intertenancy rent decontrol (referred to in Ontario as vacancy decontrol) forms the headstone of the Ontario rent-control system. The transition from a relatively rigid rent-control regime to intertenancy decontrol created distortions in the rental market, the most significant being the creation of a two-tier rent system with rent on decontrolled units above the rent that would have existed in the absence of controls. As an intertenancy system matures, maturation diminishes these distortions and recontrol provisions provide protection for long duration tenants. Alternative options for terminating intertenancy decontrol while retaining rent control all entail significant economic costs compared to the mature decontrol regime presently in Ontario.

Rent Control in Britain began in the First World War and has lasted, on and off, most of this century. There has been almost no new building for private rent since 1939. The private rented sector is small (8%), marginalized, delapidated, and unattractive. The British Government is enacting new legislation to reform all areas of rented housing. Rents of new lettings will be freely agreed (i.e., at market levels) between landlord and tenant. But the tenant has security of tenure, subject to renegotiating a new rent. The absence of any important tax incentives or other subsidy was an obstacle to revival even with market rents. But the Business Expansion Scheme proposal in the March 1988 budget has created considerable interest among investors.

The introduction of the assured tenancy regime by the Housing Act 1988 saw the end of regulation of private sector rents under the Rent Acts save in so far as decontrol required that regulation be phased out. There followed an era of high inflation and widespread homelessness and rent ceilings soon re-appeared on the political agenda. In a review of housing finance in the Journal of Property Finance,' Clive Soley, opposition spokesman on housing, deplored the decline of affordable houses to rent and asserted the significance 'economically and socially' of a healthy rented sector. He made clear his view that this should include privately rented accommodation and committed Labour to the provision of some 50,000 new homes to rent at 'affordable rents' should they win the election. This was not to be, but there are two observations worth making. The first is that this figure would not nearly replace the dwellings lost to the private rented sector alone since 1979. The second concerns the notion of an 'affordable rent'. This is a somewhat woolly concept in Soley's article: 'Opposition parties cannot have all the details of their future policy settled prior to Government'. However, we learn from his text that market rents are unaffordable which is why rents must be set independently of the landlord. It would be wrong to attempt to return to the old Rent Acts but it is absurd and unrealistic to treat housing as though it were a commodity on a supermarket shelf. As Soley himself suggests by way of understatement:

While public programmes, rent controls and subsidy schemes have not resolved New York’s historic and long-standing housing crisis, they have been important in dampening the housing problems of low-income New Yorkers. Along with an encroaching neo-liberal hegemony, however, since the 1990s redistributive policies have come under growing pressure. This article focuses on the neo-liberal restructuring of the city’s rental market and the effects on housing affordability. First, we outline the most crucial reforms and policy changes, at various scales, that have impacted the rental market in recent decades. Second, we demonstrate, using survey data, how reforms have affected the rental market structure before assessing how supply changes have affected affordability. We find that policy reforms have led to a reduction in inexpensive rental units in the city, reshaping patterns of affordability among different income groups, with particularly negative outcomes for low-income households, specifically among Black and Minority Ethnic Groups.

Effectiveness and supply effects of high-coverage rent control policies

The private rented sector of the British housing market has been in decline since the beginning of the present century; that decline has continued apace since the end of the Second World War. A proposed solution for the stemming of this demise is the removal of present rent controls and the substitution of free market conditions so that rents find their own market levels. This, so it is argued, would enable landlords to obtain a proper return on their housing investments and lead therefore to an increase in supply and an ending to the present disinvestment from this housing sector.This article disputes this thesis. In the first place it is argued that “market rent” is a problematic concept and raises complex issues of distributive justice and social policy — which its advocates ignore. Secondly, it is argued that a free market solution is ahistorical in that it takes no account of the past failure in Britain of privately rented housing; and similarly it ignores the complex web of historical circumstances behind its decline — attributing the decline to the single causal factor of rent control. Thirdly, it is suggested that a market solution is sociologically misconceived because it ignores the characteristics and needs of those social groups dependent upon this sector. Finally, on grounds of practicability it is proposed that a free market in rented housing may be quite inappropriate for the rump of housing stock remaining in the private rented sector; and that, given the current social and economic constraints operating in the housing market as a whole, any revival of this sector is unlikely even with enhanced rental inducements.It is thus concluded that a free market solution is misconceived and would merely serve to impose an ideological straightjacket upon the provision of a basic human need.

ABSTRACTThe removal of the Norwegian rent control in 1982 created a natural experiment that enabled us to investigate whether rent control affected the search and matching process in the private residential rental market in the Norwegian capital, Oslo. We collected and analysed data on ‘housing for rent’, ‘housing wanted’ and ‘housing exchange-wanted’ advertisements in Oslo covering a period from 1970 to 2008. We concluded that the use of newspaper listing services by potential tenants and landlords changed after the rent control removal. Our results indicate that it is more costly, in time and money, for a potential tenant to search for and to find a home under rent control. Moreover, our results indicate that rent control increases the probability of and the distance from the ideal dwelling, in size, standard and location, a potential tenant have to settle for.

Rent control provides substantial in-kind benefits to tenants of social housing. In the Netherlands these benefits equal almost 40% of the market rent on average. We show that rent control benefits for the 10% tenants with highest income are 5% points higher than the benefits for the 10% with lowest incomes. Next we provide evidence that rent control influences the housing tenure choice decision. We find that on average rent control reduces transitions within the social housing sector, but not transitions from the social housing sector. Only the 20% tenants with highest incomes postpone moves out of social housing in response to rent control. This suggests that the inequitable distribution of rent control benefits is prolonged by the reduction in transition rates out of social housing. It also suggests that recent policy in the Netherlands that reduces rent control benefits for high income households can increase the mobility of those affected.