In an article originally published in 2011 in Métropolitiques (in French) and recently translated into English in Metropolitics, sociologist Loïc Bonneval asserted that France’s severe rent controls between 1914 and 1948 did not impair the profitability of investments in rental housing. He did not contest the severe housing shortage that the French endured between the two wars, nor the plunge in housing construction. But, in claiming that the profitability of real-estate investments was not so bad, Bonneval implicitly opened the way for new experiments in rent control. While we applaud the quality of Bonneval’s historical research and his willingness to challenge conventional thinking, we assert that his economic analysis is unsound. More specifically, the analysis rests on an issue of minor importance: the profits available to someone who purchases a building when rents already are controlled. Far more important are the profits available to an existing landlord, or to a would-be builder of rental housing. Strict rent controls draw political support because they confer various benefits on sitting tenants, such as greater security of continued occupation. The innumerable costs of rent controls typically more than offset these advantages.
The harmful effects of strict rent controls: the economic consensus
In a 40-question poll of US economists, the proposition that “a ceiling on rents reduces the quantity and quality of housing available” attracted more support than any other. Some 76.3% of respondents “generally agreed” with the statement, while an additional 16.6% “agreed with reservations” (Alston et al. 1992, p. 204). In a similar poll of French economists, when asked the question of whether “rent controls reinforce a shortage of housing,” 21% “absolutely agreed” and 45% “somewhat agreed,” while only 19% “somewhat disagreed” and 7% “absolutely disagreed” (Wasmer and Mayer 2009, q. 57). Because economists disagree on most subjects, this widespread agreement is surprising. It is precisely this consensus that Loïc Bonneval challenges.
The influence of Paul Samuelson helps explain why US economists are particularly hostile to rent controls. Throughout his career, Samuelson, one of the most eminent economists of the 20th century and a political centrist, often invoked interwar rent controls in France as a prime example of wrongheaded lawmaking.  Perhaps on account of Samuelson, references to this episode in French history have long been a staple in the teaching of microeconomics in the United States. Ironically, this history seems to be less well known in France, even in economics departments.
In 1948, France finally relaxed the strict regulation of rents that had prevailed since 1914.  By 1948, French residential tenants were paying on average 2% of their income on rent, compared to between 15% and 20% in 1914.  In a 1949 speech, Eugène Claudius-Petit, the minister for reconstruction and urban development, asserted that, in the previous year, French households had spent seven times more on tobacco than on rent. As classic economic theory predicts, landlords responded to rent controls by reducing their outlays for maintenance, potential investors in housing became less likely to provide financing, and tenants found their mobility impaired.
Profitability, but for whom?
Bonneval concentrates his attention on the effects of rent controls on the profits available to a purchaser of a building whose rents already are controlled.  This focus misses the mark. A buyer, if aware that rents are controlled, can assure profitability by buying at a lower price. Bonneval recognizes that, in fact, this is what happened in Lyon. 
Much more important, in terms of economic consequences, are the effects of rent controls on the profits obtained by existing owners of buildings, and, in particular, by potential builders of new rental housing.
From 1914 on, rent controls inflicted catastrophic losses on owners of apartment buildings. Bonneval and Robert’s book (2013), which analyzes the records of a firm that managed dozens of these structures in Lyon between 1870 and 1968, confirms this fact. It shows that, between 1913 and 1948, the real (inflation-adjusted) value of apartment buildings in Paris and Lyon fell by 90%.  Thomas Piketty, in an independent analysis, confirms this 90% falloff. 
Further proof of the magnitude of these losses is furnished by the history of La Fourmi Immobilier, a firm that owned the same 15 Paris apartment buildings for most of the 20th century. The firm owed no debt and distributed in dividends almost all the net rents it received. After rent controls were enacted, these dividends fell drastically in real terms. Compared to 1914, they had fallen by 50% in 1939, and by 95% in 1948. As a consequence, at the Paris Bourse, the value of stock in La Fourmi dropped, in 1939, to 8% of its value before World War I, and, in 1948, to 6% of its prewar value (Simonnet et al. 1998, p. 128).
The dramatic fall in the value of apartment buildings between the two wars validates the conventional economic theory of the effects of price controls. The proprietor of a going concern, such as an apartment building (or a share of its stock), expects to receive not only a flow of revenue from the enterprise (or personally share in its use), but also the value of the enterprise when it is eventually sold. The market value of a going concern is the sum of these values, discounted to the present. Rent controls reduce the present value of an existing apartment building by lowering both the anticipated rental income and the anticipated profits at time of resale. Conversely, an unexpected loosening of rent controls—for example, the French reforms in 1948—is likely to increase the value of existing structures.
By 1938, the real value of the rents that La Fourmi received was 42% of what it had been before 1914, and, by 1948, less than 5%. Bonneval and Robert show collapses of a similar magnitude in Lyon (2013, p. 88). This was hardly a profitable time to be a landlord in France.
Landlords responded to these losses in revenue by slashing expenditure on maintenance. Rent-controlled dwellings tend to be poorly maintained.  Controls reduce not only the financial resources of landlords, but also the incentive to fix their buildings. Tenants benefiting from a reduced rent are likely to remain in residence whatever the condition of the premises.  Tellingly, Bonneval and Robert agree that French apartment buildings suffered from a lack of maintenance during the interwar period. 
Putting the brakes on new construction
More importantly for the well-being of the French population as a whole, the strictness of interwar rent controls discouraged the construction of new rental housing. An investor considering building a new apartment building had to anticipate receiving both less rental income and a lower price at the time of resale. During the interwar period, the costs of construction rose on account of inflation in the price of both construction materials and workers’ wages, neither of which were subject to price controls. Measured in constant francs, the construction cost of a standard apartment building increased by around 40% between 1914 and 1938 (Bonneval and Robert 2013, p. 224), while the real value of rental income fell by about 60% (p. 88). Under these conditions, most investors understandably refused to finance the construction of new apartment buildings.  A buyer of an existing apartment building could avoid the impact of rent controls by bidding less, exactly what Bonneval observed in Lyon. But a builder of a new apartment building had could not avoid rising construction costs.
Before the creation of INSEE (France’s national statistics office) in 1946, reliable data on the construction of multifamily structures were lacking. This makes it difficult to estimate how much—and why—apartment construction declined in France.  Nevertheless, two estimates of the magnitude of the interwar production of dwellings support the idea that rent controls dampened construction activity during an era when a large majority of households were renters. An INSEE report indicates that 1.8 million dwellings of all types were built in France between 1919 and 1939.  And, for the same period, another official document reports a lower figure: 1.5 million dwelling units.  By comparison, during the same time period about 4 million dwellings were constructed in Germany and 3.7 million in Great Britain.  A majority of analysts have attributed a large part of France’s anemic level of interwar housing production to the nation’s rent controls. 
The impairment of tenant mobility
Numerous studies, in France and elsewhere, confirm that rent controls lessen the likelihood that a tenant will move to another address.  To avoid losing the advantage of a below-market rent, a worker might refuse a better job in a more remote location, or a grandparent might decline to move closer to children and grandchildren. Bonneval and Robert themselves provide data showing that the annual turnover of tenants in Lyon fell from around 12% per year before 1914 to 5% per year in the 1920s and 1930s (2013, p. 130).
More generally, strict rent controls reduce vacancy rates and interfere with the interplay of forces of supply and demand. “No Vacancies” was the title that Bertrand de Jouvenel (1948) chose for his polemic against France’s rent controls. Bonneval and Robert confirm that the apartment vacancy rate in Lyon was higher before World War I than afterward (pp. 125–126). Artificially low rents can induce a tenant to remain in a house or apartment that they otherwise would have abandoned (Glaeser and Luttmer 2003). Thus, when rent controls are strict, an apartment with three bedrooms may end up being occupied by a single person.
The costs of administering rent controls
The implementation of rent controls consumes time and money. These costs are borne by the taxpayer, who finances the courts and public agencies that manage rent controls, and by landlords and tenants themselves. Once rent control has been instituted, it is politically very difficult to repeal, even when its negative effects are obvious. In France, only the severe disruptions of World War II made the unblocking of rents possible. When reforming the system in 1948, the French legislature revealed itself to be incapable of completely sweeping away the past. In its effort to phase out rent controls, the law of 1948 created an incredibly complex administrative mechanism for determining an allegedly “scientific rent.” This Kafkaesque system endeavored to valuate each square meter of a rental dwelling, taking into account multiple variables such as sunlight, proximity to stores, and access to utility services. One can readily imagine the conflicts between landlords and tenants that these procedures created. For some dwellings, the calculation of a “scientific rent” continues to this day.
The empirical work that Bonneval and Robert carried out is remarkable. Their study of rental buildings in Lyon invaluably contributes to a better understanding of the economics and management of real estate. Bonneval takes meticulous care when describing the positions of the many researchers with whom he disagrees. And the book is a treasure trove of citations that point to valuable sources on an important and relatively neglected episode in the economic and political history of France.
On the other hand, though, the interpretation of this history is suspect. It relies on a peripheral issue to challenge the economic consensus that strict rent controls have deleterious effects. The history of French housing between 1914 and 1948 in fact provides a textbook case against rent controls, as Paul Samuelson recognized.
The economic shocks of the 20th century have prompted state authorities to intervene profoundly in economic activity, including, notably, in landlord–tenant relations (Voldman 2016). Some rent controls, mild in comparison to those in force in France during the interwar period, continue to exist in New York City and Germany. 
At the outset of the 21st century, political conditions have again prompted proposals to strengthen rent regulation. Policymakers should be skeptical. They should keep in mind the damage done in the past by policies that, at the time, were widely regarded as well intentioned.
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