Rent control and misallocation

Abstract

The paper considers welfare effects of rent control when it is applied only in a sector of a rental housing market. In rent controlled sectors of the Danish rental housing market, we find welfare reducing overallocation of square meters between 9 and 17 per cent of actual allocations. Looking at the 20 per cent most overallocated households, the overallocation of square meters is between 42 and 92 per cent, and the estimated corresponding welfare loss ranges from 1.5 to 5.3 per cent of the average annual rent in the sectors.Rent control; Housing; Regulation; Price ceiling; Rationing; Allocation