Measuring the Value of Rent Stabilization and Understanding its Implications for Racial Inequality: Evidence from New York City

Abstract

Despite a rekindled public interest in rent stabilization amidst the housing affordability crisis, evidence of the magnitude and distribution of the benefits offered by this policy is lacking. Measuring the policy's benefits is challenging because the counterfactual unregulated rents of rent-stabilized housing units are not observed. This paper estimates quality-adjusted rent discounts for each rent-stabilized unit in New York City (NYC) from 2002 to 2017. We validate our model's out-of-sample prediction power using a machine learning method, improve comparability between unregulated and stabilized units using propensity scores, and control for unobservable housing quality using a repeat-rent approach with a panel of de-regulated units. We find an average rent discount of $410 per month and show that rent discounts are: (1) not progressively distributed towards lower-income households; (2) larger in Manhattan and increasing in gentrifying neighborhoods; and (3) twice as large for households correctly aware of being beneficiaries of the policy. The aggregate rent discounts for the entire NYC are between $4 and $5.4 billion per year, roughly 10%-14% of the federal budget on means-tested housing programs. We find that although rent stabilization disproportionately benefited White tenants in the 2000s, the racial gaps in rent discounts between White and minority tenants have shrunk or disappeared since 2011. We provide evidence that these patterns are consistent with spatial sorting and gentrification in neighborhoods with large shares of minority tenants.

Keywords: Rent Regulation, Rent Stabilization, Rent Control, Hedonic Pricing, Racial Inequality, Gentrification

JEL Classification: R28, J15, H75, L51