Effectiveness and Supply Effects of High-Coverage Rent Control Policies [WP]

Abstract

Concerns related to housing affordability are widespread in cities worldwide, and discussions about adopting rent control policies abound. This paper studies the effects of a rent control policy adopted in Catalonia in September 2020 that applies to some but not all municipalities. The policy virtually covers all the rental market and forces ads and tenancy agreements to specify the applicable rent cap to ensure enforcement. In order to identify the causal effect of the rent control regulation, we implement difference-in-differences regressions and event-study designs and analyze average rents and the number of tenancy agreements signed. Our results indicate that the regulation reduced average rents paid by about 6%. However, this price drop did not lead to a reduction in the supply of housing units in the rental market. We implement several robustness tests to address several identification concerns related to Covid-19. Our results suggest that rent control policies can be effective in reducing rental prices and do not necessarily shrink the rental market.