Rent control, mismatch costs and search efficiency

Abstract

In the discursive literature on rent control, it has been argued that rent controls cause the rental housing market to become 'tighter' - the vacancy rate falls, search costs rise, and tenants become less well-matched with housing units - but at the same time restrict landlords' ability to exploit their market power in setting rents. Such phenomena are excluded by assumption in competitive models of the rental housing market. This paper applies a monopolistically competitive model of the rental housing market developed by Igarashi to explore these effects. In the model, mild rent controls are welfare-improving but severe controls are harmful. (C) 2000 Elsevier Science B.V. All rights reserved.