Tuesday, November 13, 2012

On rent controls

Vienna is a pleasant city and it regularly tops the quality of living surveys. A such, it attracts plenty of new citizens, Statistics Austria estimates "forcasts" that Vienna is "expected to have the most marked population growth till 2060 [in Austria]". It is perhaps not surprising that rent prices increased over the last years. (This is what we expect if demand increases and supply responds sluggishly, e.g., because it takes time to obtain planning permissions et cet.)

What are likely consequences of (binding) rent controls? We may learn from other situations, e.g., Manhattan: Glaeser, Gyourko, and Saks argue "that the limited supply response is not the result of technological constraints, or imperfect competition in the construction industry, but rather the consequence of an increasingly restrictive regulatory environment."

Rent control, i.e., an imposed maximum rent price, is perhaps the most frequent regulation and has been studied widely. In principle, rent controls need not be harmful:
"whether such controls are harmful or helpful depends on the particular package of regulations adopted, which is the outcome of a political process. Thus, second-generation controls should be judged on the empirical evidence and, since the programs are so varied, on a case-by-case basis."

And this is why calls for tighter regulation should be met with scepticism: For Vienna, too few facts are available that permit the judgment of recent calls for tighter rent controls. Beware Greens bearing gifts.

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