Working Paper: CEPR ID: DP18485
Authors: Joan Monras; José G. Montalvo
Abstract: Catalonia enacted a second-generation 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 is 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 the policy.
Keywords: rental markets; rent control; housing supply
JEL Codes: D4; R21; R28; R31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| second-generation rent controls in Catalonia (R21) | reduction in rental prices (R31) |
| second-generation rent controls in Catalonia (R21) | decline in overall supply of rental units (R31) |
| reduction in rental prices (R31) | decline in overall supply of rental units (R31) |
| second-generation rent controls in Catalonia (R21) | heterogeneous effects across rental market (R21) |
| supply elasticity of rental units (R31) | responsive supply to price changes (D41) |
| welfare gain for high-quality unit renters (R21) | substantial welfare consequences of the policy (H53) |
| loss for low-quality unit renters (R21) | substantial welfare consequences of the policy (H53) |
| deadweight loss (H21) | substantial welfare consequences of the policy (H53) |