A study by the German Institute for Economic Research (DIW Berlin) comes to the conclusion that rent controls can only reduce economic inequality in the short term. It is based on the assumption that poorer households that pay high rents face richer households that have rental income. According to the DIW, if the legislature limits the growth in rents, those with low incomes will benefit the most, while the richest households will generate less income from renting.
In order for a noticeable effect to be achieved, however, strict rental price controls are necessary. In addition, those affected are finding new ways to circumvent rental price controls. For example, they convert rental apartments into condominiums. According to the DIW, rental price regulations also have other undesirable effects: They make it unattractive to build new apartments and renovate old ones. As a result, there is a decrease in supply on the rental market.
For the study, those responsible examined the distribution of the rental burden and rental income by income group based on the data from the Luxembourg income study. On the other hand, they looked at the developments in inequality and rent regulation in 16 OECD countries since 1900. They also found that while income inequality fell after the introduction of rent controls in the post-war period, it rose sharply in the 1970s due to deregulation of the rental market and other factors.
Source and further information: diw.de
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