Housing prices, ownership incentives and rent control: Evidence from France

Abstract

This paper studies the relevance of ownership incentives to improve housing affordability in a metropolitan area where rent control is imposed.
We develop a theoretical model in which owners of new housing benefit from either a homeownership incentive or a rental investment incentive.
We show that both incentives reduce second-hand housing prices and increase new housing prices.
Moreover, in the new housing market, rent control amplifies the price increase induced by both incentives.
However, in the second-hand housing market, while rent control amplifies the price decrease due to the homeownership incentive markets, it dampens the price cut due to the rental investment incentive.
We empirically test these findings by exploiting a 2014 French reform in the metropolitan area of Lyon which intensified both incentives.
We find that the reform reduces second-hand housing prices but increases new housing prices and that rent control amplifies the increase in the new housing prices but dampens the decrease in the second-hand housing prices which suggests that the effect of the rental investment incentive prevailed over that of the homeownership incentive.