262 ifo 2018 WORKING June 2018 PAPERS Does Regulation Discourage Investors? Sales Price Effects of Rent Controls in Germany Lars Vandrei Impressum: ifo Working Papers Publisher and distributor: ifo Institute – Leibniz Institute for Economic Research at the University of Munich Poschingerstr. 5, 81679 Munich, Germany Telephone +49(0)89 9224 0, Telefax +49(0)89 985369, email
[email protected] www.cesifo-group.de An electronic version of the paper may be downloaded from the ifo website: www.cesifo-group.de ifo Working Paper No. 262 Does Regulation Discourage Investors? Sales Price Effects of Rent Controls in Germany* Abstract We analyze the extent to which sales prices for residential housing react to rent-price regulation. To this end, we exploit changes in apartment prices across the regulation treatment threshold. We examine a quasi-natural design in the German federal state of Brandenburg using transaction price data provided by the committee of evaluation experts. Brandenburg introduced both a capping limit for existing rental contracts as well as a price ceiling for new contracts for municipalities with tight housing markets in 2014. Whether or not a municipality falls under this classification is based upon a municipality’s housing market characteristics, which are translated into a specific score. This allows us to employ a regression discontinuity design with a sharp cutoff point. We compare sales prices in municipalities that are located marginally above the assignment threshold with the prices in those slightly below. Our results suggest that the regulations reduced sales prices for affected apartments by 20–30 %. JEL Code: D04, R31, R52 Keywords: Housing rent controls, sales prices Lars Vandrei ifo Institute – Leibniz Institute for Economic Research at the University of Munich Dresden Branch Einsteinstr.