Housing Policy: The Paradox of Regulation-Induced Consumer Rents

In the German housing market, rents in existing tenancies are relatively highly regulated, creating a significant gap with market rents. The resulting regulation-induced consumer rents lead to considerable efficiency losses and mismatches. Moreover, rent regulation is not socially accurate. The article takes a critical look at a recent proposal aimed at liberalising rental prices and extending housing allowance. This shall be financed by taxing landlords for the additional income generated by liberalisation. Although the proposal goes to the heart of the problem, it is neither purposeful nor feasible in this form.