The Effect of Rent Controls along the ‘Excess’ Price Distribution

• Authors: Joan Monràs and José García-Montalvo.
• BSE Working Paper: 1345 | April 22
• Keywords: rent control , housing supply , rental markets
• JEL codes: D4, R21, R28, R31
• rent control
• housing supply
• rental markets

Catalonia enacted a rental cap policy that affected only some municipalities and, within those, only units with prices above their “reference” price. We show that, as intended, the policy led to a reduction in rental prices, but with price increases at the bottom and price declines at the top of the distribution. The policy also affected supply, with exit at the top which was not compensated by entry at the bottom. We show that a model with quality differences in rental units rationalizes the empirical facts and allows us to compute the welfare consequences of an (increasingly popular) policy that was designed as a short-term remedy to a tight rental market.