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Working Paper
The Effect of Second-Generation Rent Controls: New Evidence from Catalonia
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.
What Are the Long-run Trade-offs of Rent-Control Policies?
While rent-control policies can mean more affordable housing for some, research shows they can also lead to a decline in the supply and quality of rental housing.