Lorenzo Neri (University of Rome Tor Vergata)
Josep Amer-Mestre
High vacancy rates in tight housing markets are perceived by policymakers and society at large as a market failure that calls for government intervention. We study the effect of a policy passed in the Balearic Islands (Spain) that dictated the temporary confiscation of vacant properties, unless they are put on the market. Using a synthetic difference-in-differences strategy, we show that following the policy announcement, house prices increase while rents temporarily decrease before reverting back to pre-policy levels. This suggests that while supply effects dominate in the rental market, the sale market experiences an increase in prices. This is potentially due to a combination of an amenity effect i.e., the removal of the disamenity imposed by vacant properties on nearby housing and a regulation effect, whereby imposing an implicit tax on vacant housing dampens private housing investments.