CORRESPONDENCE - WS-1 OPPOSITION

Home Browse Search

We find that landlords actively respond to the imposition of rent control by converting their properties to condos and TICs or by redeveloping the building in such as a way as to exempt it from the regulations. In sum, we find that impacted landlords reduced the supply the available rental housing by 15 percent. Consistent with this evidence, we find that there was a 20 percent decline in the number of renters living in impacted buildings, relative to 1990-1994 levels, and a 30 percent decline in the number of renters living in units protected by rent control. We develop a dynamic, structural model of neighborhood choice to translate our reduced form impacts into welfare impacts. A key contribution of the paper is to show how quasi- experimental evidence can be leveraged to estimate to dynamic discrete choice model. We find that rent control offered large benefits to impacted tenants during the 1995-2012 period, averaging between $2200 and $6600 per person each year, with aggregate benefits totaling over $393 million annually. Over the entire period, tenants received cumulative benefits of around $7.1 billion. We find that most of these benefits came from protection against rent increases and transfer payments from landlords. However, we find losses to all renters of $5 billion due to rent control's effect on decreasing the rental housing and raising market rents. These results highlight that forcing landlords to provided insurance against rent increases leads to large losses to tenants. If society desires to provide social insurance against rent increases, it would be more desirable to offer this subsidy in the form of a government subsidy or tax credit. This would remove landlords' incentives to decrease the housing supply and could provide household with the insurance they desire. A point of future research would be to design an optimal social insurance program to insure renters against large rent increases. 44