A study by the German Institute for Economic Research (DIW Berlin) concludes that rent controls can only reduce economic inequality in the short term. This is based on the assumption that poorer households that pay high rents face richer households that have income from renting. According to the DIW, if the legislator limits the growth in rents, it is primarily the low-income households that benefit, while the richest households receive less income from renting.
However, in order to achieve a noticeable effect, strict rent controls are necessary. Those affected are also finding new ways to circumvent rent controls. For example, they are converting rental apartments into condominiums. However, according to the DIW, rent controls also have other undesirable effects: they make it unattractive to build new apartments and renovate old ones. As a result, there is a decline in supply on the rental market.
For the study, the researchers examined the distribution of the rent burden and rental income by income group on the basis of data from the Luxembourg Income Study. Secondly, they looked at the development of inequality and rent regulation in 16 OECD countries since 1900. They also found that although income inequality fell after the introduction of rent controls in the post-war period, it rose sharply in the 1970s due to the deregulation of the rental market and other factors.
Source and further information: diw.de
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