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The removal of rent control and its impact on search and mismatching costs: evidence from Oslo

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The removal of the Norwegian rent control in 1982 created a natural experiment that enabled us to investigate whether rent control affected the search and matching process in the private residential rental market in the Norwegian capital, Oslo. We collected and analysed data on ‘housing for rent’, ‘housing wanted’ and ‘housing exchange-wanted’ advertisements in Oslo covering a period from 1970 to 2008. We concluded that the use of newspaper listing services by potential tenants and landlords changed after the rent control removal. Our results indicate that it is more costly, in time and money, for a potential tenant to search for and to find a home under rent control. Moreover, our results indicate that rent control increases the probability of and the distance from the ideal dwelling, in size, standard and location, a potential tenant have to settle for.
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The removal of rent control impact on search and
mismatching cost: Evidence from Oslo
Abstract
The removal of the Norwegian rent control in 1982 created a natural experiment that enabled us to
investigate whether rent control affected the search and matching process in the private residential
rental market in the Norwegian capital, Oslo. We have collected data on housing for rent, housing
wanted and housing exchange-wanted advertisements in Oslo covering a period from 1970 to
2008. We concluded that use of newspaper listing services by potential tenants and landlords
changed after the rent control removal. Moreover, we indicate that it is likely that the removal of the
rent control reduced the tenants’ search and mismatching cost in the private residential rental
market in Oslo. Our result indicates that a removal of rent Control will reduce tenants search- and
mismatching cost.
Key words: Rent; Rent control; Search; Mismatching cost; Oslo
JEL: D12, E65, R21, R31, R38
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Introduction
Turner and Malpezzi (2003) say that perhaps 4050 per cent of the world’s urban population
lives in rental housing of one kind or another. Most of these households live in units subject
to controls on rent paid, making rent control one of the most essential subjects of debate in
the study of housing. The Norwegian rent control was removed in 1982. This removal
created a natural experiment that enabled us to investigate whether the rent control
affected the search and matching process in the private residential rental market in the
Norwegian capital, Oslo.
Adopting the terminology proposed by Arnott (1995), rent control in Oslo transitioned from
a second-generation system, where rents were allowed to increase at approximately the
same level as the consumer price index (CPI), to a system permitting the landlord to stipulate
any rent in new contracts, while still protecting tenants bound by existing contracts against
unreasonable rent increases. In the classification developed by Lind (2001), Norwegian rent
control transitioned from Type E to Type A (whereby the former refers to smoothing price
changes to protect all tenants against certain types of increases in market rents
segregation-related rent regulation, and the latter denotes weak transaction cost-related
rent regulation, protecting existing tenants against rent levels exceeding the market rate).
Lind’s classification system is more fully described in section two.
According to Lind (2001), rent regulation can have two major purposes. The first is to protect
existing tenants against major increases in market rents caused by greater demand. The
second aim is to ensure that renting attractive properties is not prohibitively expensive for
households on lower incomes. Despite the importance of these phenomena, Arnott (1995)
and Olsen (1988) pointed out the scarcity of research on the detriments and benefits of rent
control. They argued that, even though there is broad agreement about the detrimental
effects of first-generation rent control, second-generation rent control might not be as
harmful as is widely perceived. The problematic aspects of rent control are expressed in a
well-known 1992 survey of economists, in which Alston et al. (1992) found that over 90 % of
respondents believed that rent control decreased the quantity and quality of rental housing
in their area.
Nevertheless, it may be argued that the harmful effects of rent control are acceptable costs,
if control leads to a desired distribution of welfare. Arnott and Igarashi (2000) concurred
with this view, claiming that rent control could be appropriate for distributional reasons, as
its removal would imply major shifts in welfare from lower to higher deciles of income
distribution.
Given the variety of rent control programs, empirical studies offer the most valuable
information for assessing second-generation rent control characteristics and outcomes
(Arnott, 1995). This view is supported by Olsen (1988), while Kutty (1996) posited that the
effect of rent control on housing supply and rental quality is theoretically ambiguous and
must be empirically determined.
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In line with the studies conducted by Gibb (1994), Bailey (1999) and Oust (2013a, b), our
data is collected from newspaper advertisements. While these studies use the housing for
rent advertisements to study how the rent has developed and whether the removal of the
rent control effected the rent prices in Scotland and Norway, this paper studies the
advertisements more directly. The aim of this paper is to investigate whether the removal of
the rent control changed the way landlords and potential tenants used newspaper listing
services in the private residential rental market. Although newspapers more or less have
been replaced by internet as the main location for this type of listing services, the transfer
value to study internet listing services should be very large. We want to test whether or not
the eventual changes in the search and matching process was advantageous for the
potential tenants. The hypothesis we want to test is: The removal of the rent control made it
easier for potential tenants to access a large number of “housing for rent” advertisements,
with description of key characteristics. The intuition is that if potential tenants had access to
a large number of “housing for rent” advertisements, with description of key characteristics
this would reduce their search- and mismatching cost
We investigated this hypothesis by asking several questions. First, did housing wanted or
“housing for rent” advertisements dominate the market place? A “housing wanted”
advertisement is an advertisement where a potential tenant is asking if someone could offer
him/her a place to rent. These types of advertisement typically included the type of dwelling
wanted, where in the city the potential tenant wanted to live and some information about
the potential tenant, typically gender, age and occupation. A “housing for rent”
advertisement is an advertisement where a landlord is offering a dwelling for rent. Second,
how easily could potential tenants and landlords get information about the current rent level
through the newspaper listing services? How willing was landlords to disclose their asking
rent in the newspaper advertisements? Third, how many “housing for rent” advertisements
existed where the key characteristics like location, type, size and asking rent was available.
To give a deeper understanding of changes in the newspaper listing services that could have
impacted potential tenants search- and mismatching cost, we present data on the share of
the “housing for rent” advertisements that wanted a special kind of tenant or that wanted
some kind of extra service in addition to or instead of rent, and the share of “housing
wanted” advertisements that were posted in the newspaper by the potential tenant’s
employer and the share of potential tenants that offered some kind of extra service on top
of the rent or instead of the rent.
In the end of the paper, we present data on deposit size and the number of “housing
exchange-wanted” advertisements. To our knowledge, this is the first attempt to use this
approach to investigate whether the removal of the rent control affected the search and
matching process in the private residential rental market.
We find that use of newspaper listing services by potential tenants and landlords changed
after rent control removal. The newspaper listing services went from being dominated by
“housing wanted” advertisements to having a higher share of “housing for rent”
advertisements. Landlords become more willing to disclosure their asking rent in their
“housing for rent” advertisements. The number of “housing for rent” advertisements where
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key characteristics like location, type, size and asking rent was available increased
dramatically. We find that landlords, in the periods we are studying, went from posting
“housing for rent” advertisements in the 1970s where they often asked for a special type of
tenant and where they often asked for some kind of extra service in addition to or instead of
rent, to posting “clean” advertisements where the focus was on information about the
dwellings. Until the mid-1980s, it was more normal that employers posted “housing
wanted” advertisements on behalf of their employees than afterwards (these
advertisements were typically larger, included the logo or the name of the company in large
printing, and told that an employ in the company needed a place to live, and then contact
information of someone in the company or the potential tenant.). Until the removal of rent
control, 5 to 10 % of potential tenants posted “housing wanted” advertisements where they
offered some kind of extra service on top of or instead of rent.
We also find that landlords started asking for a smaller deposit size, and the thresholds
dividing the rental market into several sub-markets disappeared in the years following the
removal of the rent control. We conclude that the removal of the rent control reduced
tenants search and mismatching cost in the private residential rental market in Oslo. Higher
search and mismatching cost under rent control is jet another way rent control reduces the
total welfare produced in the private residential rental market, reducing the welfare to be
distributed. Our result indicates that a removal of rent Control will reduce tenants search- and
mismatching cost.
The remainder of this paper is organised as follows. Review of pertinent literature is
presented in Section 2, followed by an introduction to the Norwegian rent control and the
Oslo rental market, which is provided in Section 3. Section 4 is dedicated to the study data
description, whereas the results and their discussion are presented in Section 5. Section 6
concludes the paper by offering some key conclusions.
Literature Review
After World War II, rent control was widespread in many European and some US cities, and
still plays an important role in many housing markets (Haffner et al., 2008; Lind, 2001;
O’Sullivan & DeDecker, 2007; Turner & Malpezzi, 2003). Given the importance of the
property market (and thus rental sector) in the economy, findings yielded by studies
examining the effectiveness of rent control often serve as arguments in the political
discussion. Even though, in the last two decades, shifts toward market deregulation became
more prevalent, authors of several recent studies have attempted to quantify the effect of
rent deregulation (Lind, 2003). Conducting comparative studies of rent control removal is
very difficult because of the great heterogeneity of housing markets, making every new case
where it is possible to conduct before-and-after studies interesting and highly valuable.
Oust (2013a) analysed the removal of the rent control in Norway in 1982, focusing on the
developments in rent and house prices. His findings revealed that the rents landlords
demanded were in line with the market clearing rent in both the period with rent control
(19701981) and the period following its abolishment (19822011). Thus, Oust (2013a)
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concluded that the Norwegian rent control did not have the desired welfare distribution
effects.
Gibb (1994) and Bailey (1999) analysed the removal of rent control in Scotland in 1988,
specifically examining rent development in Glasgow and Edinburgh before and after
deregulation. Both studies revealed that rent increases in Glasgow after deregulation were
barely in line with inflation, and those in Edinburgh were actually below the corresponding
inflation levels. In addition, after deregulation, rent increases were lower than the increase
in house prices. Gibb (1994) also found that, after deregulation, a greater number of
landlords operated in the rental sector and real rents remained relatively stable. At the same
time, the concentration ratio declined, different properties were being rented out, and the
geographical distribution of rental units changed. Bailey (1999) concurred with the view that
rent levels had not risen in real terms, suggesting a smooth adjustment process, with supply
keeping pace with demand.
Another interesting empirical study was conducted by Sims (2007). Sims analysed the
removal of rent control in Massachusetts in 1995. He found that the rent control was able to
depress the rents at the same time as the rent control had a small effect on the construction
of new housing. In addition, Sims found that rent control encouraged owners to shift away
from rental status. One shortcoming of this study, as Sims pointed out, is the short time span
after deregulation, making the data set pertaining to rent control effects in Massachusetts
small. Moreover, the data may be affected by fluctuations in the business cycle and the
possibility that the market may not have reached a new equilibrium, creating a fundamental
problem of unit undersupply.
When interpreting the effects from the studies above one should be aware of that
deregulation is not an exogenous event. Maybe politicians tend to deregulate when the
effects are expected to be small, as the number of people against the deregulation then can
be expected to be smaller.
Sims’s results are in line with those reported in the extant literature on rent control
summarised by Arnott and Igarashi (2000). As the authors pointed out, in general, if rent
control depresses rents, it will reduce the housing supply, reducing the total welfare
produced in the residential rental market.
In this respect, the microeconomic intuition that relates a rent ceiling to a diminishing
quantity and quality of residences in the tenancy market has been supported by several
theoretical explorations (Basu & Emerson, 2000, 2003; Raess & Ungern-Sternberg, 2002;)
and empirical analyses (Albon & Stafford, 1990; Alston et al., 1992; Gyourko & Linneman,
1990a, 1990b; Johnson, 1951). Gyourko and Linneman (1989), Nagy (1995) and Gleaser and
Luttmer (2003) studied the New York controlled rental market, finding misallocation of
housing units. Other authors examined the reduced mobility in the housing market under
rent control (Ault et al., 1994; Clark & Heskin, 1982; Gyourko & Linneman, 1989; Munch &
Svarer, 2003; Nagy, 1995; Skak & Bloze, 2013).
Lind (2001) has developed a classification system for rent regulations with Types from E to A,
described in short below.
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Types A and B cover only sitting tenants, and concerns the rent when a contract shall be
extended or when the fixed rent comes to an end, while types C, D and E, covers both new
tenancies and sitting tenants.
Type A Weak transactions cost related rent regulation
Type B Strong transactions cost related rent regulation
Type C Monopoly related rent regulation that forbids rents higher than the market rent
Type D Overshooting related rent regulation that has the aim of smoothing changes in
rents
Type E Segregation related rent regulation
The first-generation rent controls can be seen as an extreme version of this kind of rent
regulation, as it not only stopped real increases in rents but in fact lead to falling real rents
as a result of nominal rent freezes and inflation. Some versions of what Arnott (1995) called
second-generation rent control are also of type E, but less extreme. The landlord is allowed
to increase the rent if costs increase, but not just because an area has become more
popular.
Background
The laws
Rent controls were imposed in Norway and Oslo during World War I as part of a more
extensive price capping that encompassed almost all trade sectors. The controls were
implemented to avoid damaging price increases at a time of crisis, to ensure affordable
housing for the growing working class in the main cities, and to prevent profiteering. Initially,
rent controls aimed to stabilise nominal rents, reflecting what Arnott (1995) calls a first-
generation rent control system that lasted until after World War II. Norway subsequently
introduced a more flexible system of rent control, which was subjected to a series of minor
revisions. This was, following the terminology of Arnott (1995), a second-generation system,
allowing local housing rent boards to decide what level of increase was permitted in a given
year. These approved increments were often at the same level as increases in the CPI, but
were starting from an already low rent level. While larger increases were allowed if the
rental property was upgraded, the size of these increases had to be approved by the rent
committee.
After World War II, Norway experienced a housing shortage, and the government imposed
price controls on houses and flats built with government support. The involvement of
authorities in the housing sector was exercised either through support for co-operative
building or through provision of financial aid for families that wanted to build small houses
of moderate standard. Oslo stimulated the supply of housing by giving financial support to
the co-operative company OBOS and making large areas of land available to it (Hansen &
Guttu, 2007). This policy was successful and, by the end of the 1960s, the housing market
had more or less normalised. As the supply of accommodation substantially increased, lack
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of housing was no longer considered an immediate problem, although house prices and
rents were still increasing.
Table 1: Regulations of the Norwegian housing market
Type of housing
Period
Type of regulation
Rental homes
1916-1935
Rent control on some types of
flats.
1940-2010
Rent control on some types of
flats.
1976-1983
Condominium conversion
forbidden.
Owner-occupied homes
1940-1954
Prize freeze.
1954-1969
Price regulations.
Housing co-operatives
1940-1954
Price freeze.
1954-
1982/88
Price regulations on new/old flats.
1976-1983
Condominium conversion
forbidden.
Notes: Description of the regulation and deregulation in the Norwegian house market.
The regulation and deregulation of the Norwegian housing market are summarised in Table
1. As can be seen from the data, in addition to rent control in Norway, price control was
imposed on houses and flats built with government support after World War II. As the price
was tied to the initial building cost, which increased over time, significant differences
emerged in the price of housing within the system. Many families who had moved into small
flats that were subject to price control just after World War II had experienced a sharp
increase in their standard of living, and wanted to leave their flats for houses. To afford this
transition, they needed to obtain the full market price for their flats. The system was
increasingly perceived as unfair. In 1969, the price control on houses built with financial aid
from the authorities was removed. In 1970, co-operative housing was the only controlled
market left; it remained under regulation until the end of 1987, when OBOS, the last co-
operative, removed the price control. Hence, co-operative housing has its own price index,
distinct from the price index used in this work.
The rent system in Norway was characterised by four main elements:
(1) Rent control was enforced through a system of local rent boards that decided how much
the rent could increase from one year to the next.
(2) Landlords were supposed to involve the rent board in setting the rent when letting a
dwelling for the first time. In practice, the rent boards were seldom involved in the pricing.
Although most landlords set the rent independently, they were supposed to comply with the
rent control rules.
(3) The regulations prohibited eviction of tenants without reason. A short list of grounds for
eviction was codified in the laws, and landlords faced the burden of proving violations.
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(4) To maintain sufficient supply of rental units, landlords’ opportunity to convert flats from
rentals to owner-occupied homes was restricted. While this stipulation was not in place in
the 1969 to 1975 period, the process was time-consuming and this option was thus rarely
exercised.
One of the problems with the rent control system was its dependence on tenants reporting
excessive rents to the board or to court. If a tenant did not accept the rent and it was in
conflict with the rent control, he or she could bring the matter to court. For the tenant, the
benefit of reporting an excessive rent stemmed from the fact that, upon signing the rental
contract, he or she could obtain a lower rate in the new contract. However, this was rarely
the case in practice. As we show later, it seems that most tenants simply accepted the rent
that the landlord offered in order to find somewhere to live.
The repeal
The removal of rent control through the Act of June 11, 1982 # 44 came less than one year
after the Conservative Party took power for the first time in more than a decade. With the
support of the centrist parties, the government started pushing for reforms. Rent control for
new rental contracts was removed, but remained in force for old contracts on pre-World
War II brick buildings until 2010. In addition, condominium conversion was now allowed, and
removal of price controls on co-operative housing was permitted. These rapid changes
present a natural experiment that allows us to study the effects of the removal of rent
control. In the classification developed by Lind (2001), Norwegian rent control transitioned
from Type E to Type A.
In 1999, a new Rent Act went into force in Norway. However, since rent control was not a
part of the previous Rent Act of 1939, price control on most flats had already been removed
in 1982. Consequently, the Rent Act of 1999 caused minor changes in the manner rents were
determined. The Act accepted existing market rents for new tenancies. According to the Act,
market rent is never regarded as unfair. In existing contracts, rent increases can only be
made once a year, and should not exceed the changes in the CPI. A larger revision is
permitted every third year to ensure that the rent follows the market trend. The normal
time period for a fixed-term contract is three years.
After the 1982 Act came into force, a number of rent-controlled flats still remained in
Norway. To protect lifelong tenants, rent control was optioned as a transitional rule for pre-
World War II blocks of flats, in some of the larger cities. The number of flats covered by the
transitional rule in Oslo was approximately 44,000 in 1981 and fell to approximately 12,000
flats in 1992 (Ot. Prp. Nr. 82 199798). After 1999 the transitional rule was changed so that it
only protected existing tenants. Brattbakk (2007) estimated that, in 2006, only 3,500 flats
that were under rent control were left in Oslo. These remnants of the old rent control were
abandoned on January 1, 2010. The main reason for the drop in the number of flats included
in the transitional rule was that after the general removal of the rent control, condominium
conversion was no longer forbidden. Many of the existing tenants became owners of the
flats instead of renters and if the tenant living moved, the flats typically was converted and
sold instead of being let again.
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The rental market in Oslo and Norway
Oslo is the capital of Norway, and by far the country’s largest city, with a population of
487,363 in 1970 and 560,484 in 2008. Metropolitan Oslo has a population of approximately
1 million. In the second half of the 19th century, both the population and the construction
sector activity increased sharply.
In Norway, there is a strong tradition of living in owner-occupied dwellings. The period of
intense urbanisation at the start of the 1900s marked a break with this tradition, with an
increase in landlord-owned blocks of flats in the cities. Owing to the emergence of this trend,
there has been a strong political will to make it easier for common people to own their
homes. This policy was successful and, at 77 %, Norway is now among the countries with the
highest home ownership rates. For the capital Oslo, the figure is 69 % (Table 2). The removal
of rent control came amidst a strong increase in owner-occupancy. According to the
available data, 16 % of households living in owner-occupied homes are in co-operative
housing. In addition, the 23 % of population living in rental housing comprises of 18 %
residing in private rentals and 5 % living in social housing (2001 figures).
Table 2: Percentage of tenants
1920
1970
1990
2001
2011
Norway
47%
34%
22%
23%
23%
Oslo
95%
49%
24%
29%
31%
Notes: The table shows the percentage of households in Norway that are tenants. In the 20th
century, Oslo went from having very few owner-occupying households to about 69%. Household data
presented in the table is from the censuses of population and dwellings in Norway undertaken by
Statistics Norway in the years 1920, 1970, 1990, 2001 and 2011. We have no comparable figures for
1981, but have national data from the National Housing Conditions Survey showing a tenant share of
31% in 1973, 27% in 1981, and 21% in 1988.
The deregulation of the rent market may have accelerated the decrease in the percentage of
households renting their residence. Before the deregulation, professional landlords typically
owned blocks of flats, where condominium conversion was forbidden. (The term
professional landlord is here used to distinguee non-professional landlords typically renting
out one or two flats in their own house. In Norway a person owning four or fewer flats, and
no other commercial property, is regarded as a non-professional landlord.) These properties
were typically divided into separate flats and sold to people that chose to take residence
there themselves. After some time, as shown in Table 3, professional landlords re-entered
the market, but opted for holding other asset types. It is also evident that non-professionals
comprised a significant share of the rental market, occupying a wide variety of flats.
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Table 3: The composition of the rental market in Norway
1973
1981
1988
1995
2001
Non-professional landlords with live-in
tenants
68
54
45
109
130
Remaining flats rented out by non-
professionals
105
132
129
177
130
Company residence, public and private
86
51
31
33
25
Local authority owned
33
42
51
56
60
Professional landlords
104
67
45
41
95
Rest
6
4
6
1
10
Total number of rented residencies
402
359
307
418
450
Notes: The composition of the rental market in Norway, 1973-2001. All numbers denote 1000s.
Source: Langsether et al., 2003
This large change was a result of the deregulation of the housing market, which enabled
many tenants in pre-World War II blocks of flats to buy their flats at a low price (In Norway
there existed, and still exist, a law that allows tenants to buy the apartment that they are
living in with a discount if a block of flats is divided in to individual flats.). Consequently, the
residential rental market started to primarily serve young people, who chose to rent before
becoming home owners. More than 90 per cent of all Norwegians become home owners
during their lifetime (Gulbrandsen & Nordvik, 2007). The decline in the number of flats
owned by professional landlords is probably to a large degree caused by the same policy.
The pre-World War II blocks of flats were previously primarily owned by professional
landlords. When these flats where sold to the tenants, it took some time before the number
of properties held by professional landlords increased to the 1970s’ levels.
Data
To study the removal of rent control, we focused on the private sector of the rental market.
As noted in previous sections, 18 % of Norwegian households live in private rental housing.
In line with the approach adopted by Gibb (1994), Bailey (1999) and Oust (2013a),
newspaper advertisements served as the data source for our study.
The data required for meeting the study objective were collected in two phases. The first
phase comprised of gathering rent information, deposit amount, type of residence, number
of rooms, property size (in square meters), address and identification information (landlord’s
phone number and advertisement number) for 27,907 flats and houses advertised for rent in
Oslo. While the sample generally included only the advertisements that were registered in
August, exceptions were made for the years with few advertisements, for which July and
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September were included as well, as these months represent the time of year in Norway
with the largest number of observations could be made.
Once the sample was formed as described above, entries were checked and those missing
certain items or containing data that could bias the indices were excluded from the analysis.
Thus, advertisements that had one or more of the following features were excluded:
Properties not identified as any of the flat types or as a house
Properties located outside the Oslo area, defined here as more that 30 km or 30 min
away from the city centre
Repeated rent advertisement with no time interval between tenancies
Properties with a rent period shorter than 6 months
Dwellings without bathroom, inside toilet or cooking facilities
Rent includes other services, such as babysitting, renovation, etc.
Advertisements not specifying rent
Fake advertisements for dwellings that do not exist (“Housing for rent”
advertisements have from time to time been used by sellers of other types of goods
or services, like books or lawns.)
In the second data collection phase, we counted the number of “housing for rent”
advertisements and “housing wanted” advertisements for the five first weekdays of August.
The counting was carried out at five-year intervals (1970, 1975, 1980, 1985, 1990, 1995,
2000, 2005 and 2008). We imposed the criteria applied to the first phase noted above, with
the exception of the dwelling type and rent. The main aim of the second data collection
phase was to establish differences in the housing supply and demand in the Oslo area for the
years examined. We also use this data set to look at request (by landlords) and offers (from
potential tenants) of other services, such as babysitting, renovation, etc.
In conducting the survey, we were aware of one important limitationthe data gathered
reflected solely the rent information about dwellings advertised through the listing service,
Aftenposten, the largest listing service in the study period. According to Langsether et al.
(2003), in Norway, about one third of tenants find their dwelling through listing services.
However, the gathered data pertain to the part of the market that is most affected by rent
control. It should, nonetheless, be noted that, the information obtained in this manner
excludes rents in public or semi-public housing, which constitutes about one fourth of the
market (Langsether et al., 2003). Still, this is not a significant issue for the present study, as
the government does not need rent control to ensure that cost of dwelling in the public and
semi-public sector is below the market clearing rent. Thus, these submarkets are less likely
to have been influenced by the rent control.
Results and discussion
The aim of this paper is to investigate whether the removal of the rent control changed the
way landlords and potential tenants used newspaper listing services in the private residential
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rental market. We also want to test whether or not the eventual changes in the search and
matching process were advantageous for the potential tenants.
The first question we asked was did “housing wanted” or “housing for rent” advertisements
dominate the market place. Another important shift in the market search and matching
behaviour can be observed. In Figure 1 can we observe a shift in how potential tenants and
landlords used newspaper listing services. Prior to the removal of rent control, “housing
wanted” predominated, whereas in other periods, “housing for rent” advertisements
become more prevalent.
This is a significant shift in the marked search and matching behaviour, which was not
evident prior to 1990. This pattern coincides with the bust cycle in the Norwegian housing
market; the observed shift could have been caused by rent deregulation, as it persisted even
after the bust cycle was over. If the demand for rental housing was higher than the supply of
the rent controlled dwellings, the need for advertisements would diminish. While it is
difficult to claim causality between the removal of the rent control and the shift in the type
of advertisements, it is evident that the trend was positive for the tenants. It also likely
benefitted the search and matching process, since the properties of the dwellings should be
more important than the properties of the tenants. “Housing for rent” advertisements
instead of “housing wanted” advertisements should then lower the total searching cost
giving a social benefit.
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Figure 1. The average number of “housing for rent” and “housing wanted” advertisements
placed in Aftenposten between 1970 and 2008. The figures pertain to counts conducted at
five-year intervals.
The second question we asked was how easily could potential tenants and landlords get
information about the current rent level through the newspaper listing services. Figure 2
shows how often landlords chose to put the asking rent in their “housing for rent”
advertisements. The data presented reveal a marked change in the number of housing for
rent advertisements that included the asking rent in the period when the rent control was
removed. More specifically, in the period affected by rent control, only around 20% of the
advertisements specified the asking rent. After the deregulation, the fraction of
advertisements including an asking rent increased rapidly to about 80%.
One possible reason for the change in the percentage of advertisements specifying rent
value may be reluctance to advertise illegal rent in the newspaper (Oust, 2013a). However,
irrespective of the motivation behind this shift, the share of landlords that advertised their
properties with an asking rent increased significantly after the removal of the rent control.
Figure 2. The fraction of the “housing for rent” advertisements in the newspaper Aftenposten
in the five first weekdays in August that included asking rent. The numbers have been
compiled at five-year intervals.
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The third question we asked was how many “housing for rent” advertisements where the
key characteristics like location, type, size and asking rent was available. Figure 3 shows
yearly observations of the average number of housing for rent advertisements placed in
the newspaper Aftenposten that specified asking rent. We have also added the equivalent
number of advertisements for the Internet listing service Finn.no between 2001 and 2008, to
show that the decrease in the number of newspaper advertisements is caused by the
introduction of Internet listing services.
Figure 3. The average number of housing advertisements per day with asking rent in the
newspaper Aftenposten between 1970 and 2008 and the equivalent number of
advertisements for the Internet portal Finn.no between 2001 and 2008.
Figure 3 reveals four important effects, namely (a) a greater number of “housing for rent”
advertisements included an asking rent, (b) greater prevalence of landlord advertisements
relative to those placed by tenants, (c) the business cycle effect, and (d) at the end of the
time series, a large majority of “housing for rent” advertisements were placed over the
Internet.
It is also evident that the change in the tenant searching cost lags behind the rent control
removal. Once the transformation is complete in 1989, a large push from the business cycle
can also be noted. However, the transformation clearly commenced before the start of the
business cycle and the effect persisted even after the business cycle ended. It is natural for
market changes to experience some lag time, especially when the change in the searching
behaviour is as large as the one demonstrated here.
15
The intuition behind these three first question was that if potential tenants had access to a
large number of “housing for rent” advertisements, with description of key characteristics
this would reduce their search and mismatching cost.
The conclusion is that it became much easier for tenants to obtain information about both
dwelling characteristics and rent though listing newspaper services after the removal of the
rent control, which is likely to have resulted in a much lower tenants searching cost. Thus,
while a time lag relative to the removal of rent control is evident, this was clearly the most
important change in the rental market during this time period.
Table 4: Housing for rent with a special request and housing advertisements with special offer
Housing for rent advertisements
Housing wanted advertisements
Year
Type of tenant
wanted
Advertisement with
service request
Advertisement posted by
employer
Extra service
offered
1970
33.6 %
19.6 %
14.1 %
6.9 %
1975
24.6 %
10.5 %
10.5 %
5.1 %
1980
9.6 %
8.4 %
16.2 %
9.1 %
1985
5.3 %
2.8 %
12.9 %
1.4 %
1990
1.2 %
0.2 %
2.8 %
1.0 %
1995
1.1 %
0.4 %
3.2 %
0.2 %
2000
1.1 %
0.4 %
3.2 %
0.2 %
2005
0.7 %
0.5 %
0.7 %
0.7 %
2008
0.0 %
0.2 %
0.0 %
1.2 %
Notes: The table shows the share of “housing for rent” advertisement that requested a special type
of tenant or that requested some sort of extra service from the tenant as a part of the rent and the
share of “housing wanted” advertisement that was posted by the potential tenant’s employer or
where the potential tenant offered some type of extra service in addition to the rent.
In Table 4 we present data on the share of the “housing for rent” advertisements that
wanted a special kind of tenant or that wanted some kind of extra service in addition to or
instead of rent. In the 1970s and early 1980s, when rent control was in place, landlords could
be very specific in their advertisements about which type of tenant they wanted. It was most
common that the advertisements asked for a specified gender, followed by age, couples,
couples without children, type of occupation and in some advertisements religion (strong
Christian beliefs) of a desired tenant or even indicating an area of Norway he/she should
originate from. Sometimes, owing to overly narrow and stringent requirements, these could
be met by a very few households.
The rent control might have contributed to the emergence of this situation. Given that many
potential tenants would typically be willing to pay the controlled rent that was lower than
the market clearing rent, landlords could impose other criteria, given that they could not
increase rent as a means of finding the most suitable tenants. While this practice might have
given the landlord additional options, it clearly created a strong possibility of discrimination.
16
The fall in the share of advertisements that had a specific request about the type of tenant
the landlord wanted seems to have started before the removal of the rent control.
It was also more common for landlords to require various additional services (Table 4). Baby-
sitting was the most common extra service landlords asked from their tenants. However, the
advertisements revealed a wide range of other services, such as garden work, snow clearing,
driving, renovation help, et cetera. The value of some of these extra services was substantial,
and led to lower asking rent or “free” housing.
Potential tenants would also offer to do extra services for the landlord in their “housing
wanted” advertisements (Table 4) before the removal of the rent control. Most of this
advertisements offered janitor work, renovation and garden work, snow clearing, but also
baby-sitting.
Such requests and offers for additional services might be perceived as a way for the landlord
to achieve the rent level that is closer to the market clearing rent. In addition, as
determining the exact value of these additional services was difficult, their inclusion into
rental agreements made it possible to avoid discussions on violation of the rent control. On
the other hand, many landlords probably needed these services, and having a flat provided
an opportunity to obtain them without incurring additional costs.
In practice, however, requests for extra services reduced the number of suitable potential
tenants, creating fewer matching opportunities in the market. Consequently, tenants
seeking a dwelling would, on average, have to search for a longer time to locate suitable
property.
Table 4 also shows that until 1985, about 10 to 15% of the “housing wanted” advertisement
was posted by the potential tenant’s employer. Some potential tenants also had their
parents or a relative to post the advertisement for them. This would typically be the case, if
the parents or the relative had a prominent position. To have an employer posting the
“housing wanted” advertisement seems to have been beneficial to the tenant, indicating
implicit and sometimes also an explicit employer guarantees, implying that the rest of the
tenants would have a disadvantage.
The size of the deposits seems to have changed as well once the rent control was abolished
(Table 4). Large deposits where more common in the “housing for rent” advertisements
early in the time period included in this analysis. In the period from 1970 to 1982, high
deposits were not uncommon, and could be as large as 100 to 150 times the monthly rent,
typically ranging from 50 to 60 monthly rents (Table 5). While this may seem excessive, it is
important to note that the rent was rather low. After 1982, it was rare to find such excessive
deposit requests. Nonetheless, in the first few of years after the deregulation, a few
advertisements still stipulated deposits equivalent to 50 to 60 monthly rents.
High deposits might be yet another way to bypass the rent control, as tenants would be
required to contribute most or all of the equity needed to own the flat, and/or give the
landlord additional income from the interest from the deposit.
17
High deposits are likely to exclude a number of potential tenants, thus making the matching
process difficult for households with low income and limited savings. Consequently, rental
units for which high deposits are required can be perceived as a submarket to which many of
the potential tenants would not have access.
Table 5: Large deposit
Deposit
1970-1982
1983-2008
1978-1982
1983-1987
More than 5 times the rent
12.8%
0.7%
13.6%
4.8%
More than 10 times the rent
8.2%
0.2%
6.2%
1.6%
More than 20 times the rent
5.8%
0.12%
3.7%
0.8%
Notes: The data pertains to the percentage of deposits defined as large (deposits that are equivalent
to 5, 10 or 20 monthly rents). The prevalence of high deposits in the period with and without rent
control, and just before and right after the deregulation, is contrasted.
The newspaper Aftenposten also had an advertisement column for those that sought to
exchange housing (Figure 4). This exchange market was still active in the early 1980s, but
started to become less prominent during the late 1980s, and effectively ceased to exist in
the early 1990s. Households used this feature to advertise that they wanted to exchange
dwellings. The column contains both dwellings for rent and owner-occupied dwellings.
Among the self-occupied dwellings, co-operative flats are the most common. Price
regulation for the largest co-operative in Oslo, OBOS, existed until 1988. Co-operative
housing occupants also incurred rent costs, as well as some type of deposit. However, as
length of these advertisements was limited, most did not specify if the advertised dwelling
was a rental unit or an owner-occupied unit. However, the flats with known status seemed
to be quite evenly distributed between owner-occupied and rental. The exchange market for
rental housing seems to have constituted approximately 5 % of the total advertisement
market before the removal of the rent control.
18
Figure 4. The average number of housing exchange-wanted advertisements per day in the
newspaper Aftenposten between 1970 and 2000. In 2000 and after, exchange of housing did
not have a designated column.
A typical example of an exchange wanted advert would stipulate that a household needs a
flat of a different size or in a different geographical location. One reason for the existence of
this exchange submarket is gains that can be achieved by exchanging dwellings that have
controlled rent, as this reduces living costs. To be sitting on a rent contract, with a low rent
seems to have a value in itself. Indeed, the advertisements often highlighted low rental cost.
From 1999 it was no longer possible to transport rent contracts for dwellings under the
transitional rule to a new tenant. The result was that exchange-wanted advertisements for
rental housing disappeared from the newspaper.
Exchange of housing, instead of two separate search and match processes, reduced market
size. While not many households would seek to exchange dwellings, this nonetheless
reduced the size of the main market.
While Oust (2013a) argued that the rents landlords demanded were in line with the market
clearing rent in both the period with rent control (19701981) and the period following its
abolishment (19822011), we argue that the rent control had an effect on the rent, and had
a significant effect on the search and matching process in the private residential rental
market. This might have been seen as a paradox since the result in this paper might indicate
19
queues and shortages before the deregulation, and then rents should have increased in
order to reach a more balanced situation.
Figure 2 shows that the share of “housing for rent” advertisements with an asking rent was
close to 20% before the removal of the rent control. Table 4 shows that between 8 and 20 %
of the “housing for rent” advertisements included the request for some kind of service in
addition or instead of the rent. This type of advertisement was explicit excluded from the
rent index used by Oust(2013a). The extra services do not come on top of the market
clearing rent, the extra service seems to be an alternative way of achieving marked clearing.
Conclusion
This study examined how potential tenants and landlords in Oslo changed the way they used
newspaper listing service to find housing and tenants after the removal of rent control. We
found that, the advertisement trend shifted from “housing wanted” and “housing for rent”
advertisements that did not specify rent, towards “housing for rent”, after the removal of
the rent control. Landlords become more willing to disclosure their asking rent in their
“housing for rent” advertisements, after the removal of the rent control and the number of
“housing for rent” advertisements where the key characteristics like location, type, size and
asking rent was available increased dramatically. The intuition behind these question was
that if potential tenants had access to a large number of “housing for rent” advertisements,
with description of key characteristics this would reduce their search and mismatching cost.
We find that landlords, in the periods we are studying, went from posting “housing for rent”
advertisements in the 1970s where they often asked for a special type of tenant and where
they often asked for some kind of extra service in addition to or instead of rent, to posting
“clean” advertisements where the focus was on information about the dwellings. Until the
mid-1980s, it was more normal that employers posted “housing wanted” advertisements on
behalf of their employees than afterwards. Until the removal of the rent control 5 to 10 % of
potential tenants posted “housing wanted” advertisements where they offered some kind of
extra service on top of or instead of the rent.
We find that, in the years following the removal of the rent control, landlords started asking
for a smaller deposits and that the rental market increasingly emerged as one rental market.
We conclude that the way potential tenants and landlords used newspaper listing services to
find housing or a tenant changed after the removal of the rent control. Moreover, we posit
that it is likely that the removal of the rent control reduced the tenants search and
mismatching cost in the residential rental market in Oslo. Higher search and mismatching
cost under rent control is jet another way rent control reduces the total welfare produced in
the private residential rental market, reducing the welfare to be distributed. Following
Arnott and Igarashi (2000), this should give desired welfare distributional effects.
The removal of the rent control in Norway and Oslo probably came at an ideal time. The self-
ownership ratios were high, the construction activity during the previous decades had been
so high that the shortage of housing was low. Combined with the problems/cost that rent
control created, some of them described in this paper, this would probably have made it
20
easier and more popular for the politicians to remove the rent control. Our result indicates
that a removal of rent Control will reduce tenants search- and mismatching cost.
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Under Common-Law principles, Multiple Listing Service (MLS), Real Estate Website (REW) laws and Rent-Control and Rent-Stabilization (RCRS) statutes in many countries are or may be unconstitutional and can significantly affect the transmission of monetary policy and fiscal policies, and may have affected the rapid changes in housing prices and housing demand that occurred in the United States and other countries between 1995 and 2010. MLS and REWs are fintech systems that are used around the world. There is an increasing and symbiotic relationship between the unconstitutionality and anti-competition effects of MLS, Real Estate Websites (REWs) and RCRS on the one hand and systemic risk and financial stability on the other. MLS, Real Estate Websites (REWs) and RCRS can have substantial effects on consumer behavior in credit and asset markets—and this can precipitate structural changes in the financial services, real estate and retailing industries. Hence, all existing housing-demand models and housing price forecast models are grossly mis-specified primarily because they do not incorporate legal factors and associated economic effects.
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Private rental markets have become increasingly important since the Global Financial Crisis 2008–2009 and rent controls are back on the political agenda. Yet, they have received less attention from housing scholars than homeownership and public housing. This paper presents new data on the development of private tenancy legislation based on a content-coding of rent control, protection of tenants from eviction, and rental housing rationing laws across more than 15 countries and 100 years. This long-run perspective allows for inquiring about the dynamic effects of rent control on the rise of homeownership as the dominant tenure during the twentieth century. We find that both rent regulation and rationing measures were followed by increases of homeownership and decreases of private rentals. We suggest that homeownership was not just produced by generous subsidies or the homeownership dream, but also through the push-effect of regulation crowding out rental units.
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Rent regulation can lead to lower production of rental apartments in at least three ways: • Reducing the rent that it is possible to charge. • Increasing the risk because the regulation might be changed. • Increasing the risk because there might be rent-regulated apart-ments with lower rents, and then vacancies will be concentrated in new construction when demand falls. A number of factors determine how large the effect will be, e.g. how "hard" the rent regulation is, whether measures to stimulate housing production are part of the same "package" as rent control, and to what degree the production of non-regulated housing in-creases. In the empirical part, it is argued that the evidence is consistent with a story in which rent regulation played a very small role for the low level of housing construction in Sweden during the economic boom 1995-2001. In this story, the important factors were the low elasticity of supply (related to the planning process and lack of com-petition in the factor markets), in combination with a demand that was directed towards the city centers. It is further argued that condo-miniums would have dominated production even if there had been no rent regulation. In recent years, when demand increased rapidly also in suburban areas, the third mechanism above might have become more important. A change to a milder form of rent regulation, with market rents in vacant apartments, would reduce the risk of new con-struction in these areas and should lead to higher housing construc-tion there.
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This paper provides an overview of the nature and extent of the private rented sector in Europe. It highlights the growing interest in enhancing and regulating the sector after a prolonged period of neglect by policy makers in many countries. The different strategies that Governments have devised to regulate the sector, particularly rent control, are outlined and their evolution reviewed. More subtle and flexible rent regulations than characterised earlier forms of rent control have emerged, but it is unclear as to what impact these looser regulations are having on marginal households at the ' lower end ' of the private rented sector The strategies for promoting the private rented sector and the enforcement of the regulatory instruments vary by country, often a reflection of the experience of the sector during the 20th century. For some countries, the private rented sector remained robust after the strains of the 20th century, for others it was in a perilous position. Thus, strategies employed at the beginning of the 21st century, reflect in part these different historical end points as much as economic globalisation and the alleged ascendancy of neo-liberalism in the housing markets of Europe.
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Efforts to stimulate reinvestment in the private rented sector in Britain began in the late 1980s. It suited the Conservative government to label these changes as ‘deregulation’ although they were more complex than this term implies. This article provides evidence of the impacts of the changes in Scotland. It emphasizes the need to examine the impacts on different groups within the private rented sector. In particular, deregulation tended to favour those able to pay market rents, while increased restrictions on housing benefits meant that the ability of low-income households to afford private rented accommodation was reduced. Other groups, such as those in tied accommodation or on regulated tenancies, were largely unaffetted by the changes. In response to deregulation, there has been a significant increase in the flow of lets at the upper end of the market (self-contained flats and houses) while rents for this type of accommodation have barely risen. At the lower end of the market (shared accommodation), the flow of lets has increased only marginally or not at all. Landlords also appear to have become more reluctant to house low-income tenants. The article uses a database compiled from advertisements for private rented accommodation appearing in newspapers and property guides in the period 1987 to 1996.
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In this paper, newspaper adverts are used to investigate the effects of the deregulation of private renting in the UK. The paper contrasts newspaper adverts in 1988 (before deregulation took force) with 1992 for the market furnished sectors of Glasgow and Edinburgh. The methodological issues of using such data are discussed, as well as the partial nature of such an analysis. It turns out that there is some limited evidence of more competitive market conditions and an expansion of supply can be inferred in Glasgow. OLS rental regressions implied significant changes in the implicit prices of the determinants of marginal rents in both cities. The paper concludes on a note of caution emerging from the absence of a sustainable supply subsidy to encourage the further development of commercial rental housing.
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Controls on the conditions of renting housing can take many different forms, with different consequences for the market. This paper contains analyses of the effects of different regulatory forms on, in particular, the maintenance decision. We review and extend previous approaches and find that not all of the familiar predictions of the basic neoclassical model can be generated by a more sophisticated model. Others have extended the basic model, focusing on the maintenance aspect, but we cannot agree entirely with their conclusions. A careful specification of the relationship between costs and quality is necessary to derive useful predictions about the effects of rent and eviction controls.