These days, and coinciding with the presentation of amendments to the Budget project, the discrepancy between the government partners regarding the effectiveness of imposing limits on rents has been revealed again. I have already told you in the past that on this point the economists have very few doubts and the majority agree: the controls cause significant negative effects.
If you search hard you can find "reports" and even articles in magazines of little reputation that do not coincide with this opinion, but they are the exceptions. A recent pseudo-experimental paper on rent control in San Francisco, published in one of the best economics journals in the world, has become the essential reference. The results show that in the very short term the controls reduced the movement of tenants benefiting from the control out of San Francisco, but in the medium and long term it reduced the rental offer by 15% due to the sale of those units, generating an intense gerintrification process. Come on, bread for today and hunger for tomorrow and the day after tomorrow.
Can the period of rent control in Catalonia provide any teaching? There are all kinds of opinions on this, some more informed than others. And normally the least informed are the ones who see its effects most clearly. It is a good strategy to distrust those who are totally certain of the effect or who settle its effects by counting tweets for and against.
Evaluating the impact of public policies is a complex task if they have not been designed to be evaluated. But in the case of rent control in Catalonia, several elements are added that make the analysis even more complicated. Let's look at Barcelona. In the second and third quarters of 2020, after the start of the pandemic, rents begin to fall, a process that continues in the fourth quarter, coinciding with the start of rent control. Were rents going down because of the pandemic or because of rent control? If it was rent control, why was the same thing happening in Madrid?
In the fourth quarter of 2021 the rental price in Barcelona no longer fell and in the first quarter of 2022, still with rent control, it rose to 7%. In fact, during 2021, in full control, rental offer prices recovered more quickly in Barcelona than in Madrid. In addition, the number of new contracts signed in the first quarter of 2022 fell by 15%. The temporal analysis blurs the effects of the pandemic and rent control.
What if we also compare the cities where there is rent control and those where there is not? Well, it's like comparing churras and merinos. What does the Barcelona rental market, where 11,443 rentals were signed in the second quarter of 2022, have in common with the situation in Agramunt (26 rentals)? As if these were not enough difficulties, the rent control experiment has lasted a very short time, so only the short-term effects can be clearly observed. Finally, the analysis of the offer based simply on the new contracts signed has its difficulties, especially in a period of great change in the sector such as the pandemic. Signing twelve one-month or one twelve-month contracts generates the same number of available homes/month or supply, although in one case there are many more signed contracts. Changes in the duration of contracts affect the relationship between offer and signed contracts.
Given all these difficulties, it is not easy to resolve the impact of control in Catalonia. The credibility of the results crucially depends on the quality of the data and the statistical methods used to make “comparable” populations that are poorly comparable. There are currently three working documents on the subject. Therefore, none of these works has yet passed peer review. A first working document from the Barcelona Institute of Economics uses data aggregated at the municipal level of sureties in Incasol. Faced with the difficulty of comparing very different municipalities, it adopts a radical solution: eliminate Barcelona. In these data it is only an observation of the 61 municipalities where rent control was applied, but it represents no less than a third of all rental contracts in Catalonia. Doesn't seem like a good approximation.
A second working paper from the German Institute for Economic Research uses individual Idealista ad data. However, the authors themselves acknowledge that they are not very sure whether the fall in rental prices they observe is the effect of the control or the increase in tourist apartment advertisements during the Covid-19 pandemic.
The third paper, of which I am the author together with Joan Monras, appeared in the series of documents of the Barcelona School of Economics. In this case we use the individual data of Incasol but we also have the reference prices of each property. In addition, the procedure used allows us to show that the compared municipalities (with and without control) are comparable after transformation. The effect of rent control is a reduction in price, which moderates over time. This is not surprising as studies of control in Berlin show that after a few months prices no longer fell.
The Barcelona data show this effect very clearly. Having the reference prices allows us to explain the origin of this initial price reduction: the apartments with higher rents are leaving the market and those that are below the reference price increase their prices. This reduces the supply for sale of rental units. Therefore, the contribution of the case of Catalonia is to confirm the results of other places. With this evidence it is difficult to argue in favor of rent control, although you can always count tweets and “reports”…
