Efficiency Pricing, Tenancy Rent Control and Monopolistic Landlords

This paper presents a model of 'tenancy rent control' where rent increases on, and evictions of, sitting tenants are prohibited but nominal rents for "new" tenants are unrestricted. If there is "any" inflation, landlords prefer to take short-staying tenants. If there is no way for landlords to tell a tenant's type, an adverse selection problem arises. If landlords have monoply power, then they may prefer not to raise the rent even when there is excess demand for housing. These 'efficiency rents' show that tenancy rent control can give rise to equilibria that look as if there were a flat ceiling on rents. Copyright The London School of Economics and Political Science 2003.