# **Rental Regulation and Its Consequences on Measures of Well‐Being in the Arab Republic of Egypt**

## **1. Introduction**

For more than 20 years, households’ welfare and poverty levels have been at the center of countries’ development policies and safety net strategies. International organizations have also relied on poverty and related indicators to draw and design their global strategies. The World Bank’s goal to end extreme poverty by 2030, the United Nations Millennium Development Goal of cutting poverty in half in 2015, and the renewed Sustainable Development Goal of “No poverty” by 2030 are but a few examples of how a money metric approach has been used to monitor households’ living standards and progress towards global objectives. Accurately tracking of these goals thus becomes crucial and cannot be implemented without a clear understanding of the underlying methodologies and data that are used to inform these global strategies.

Among the components of a welfare measure, the housing services are a key element. For instance, the share of housing as a percentage of household’s net disposable income ranged from 13 percent in the Republic of Korea to 25 percent in Greece.<sup>2</sup> When consumption is used as a yardstick of welfare, as it is done in many developing countries, housing services should adequately capture the utility generated by consumption of the dwelling’s amenities ( **Deaton and Grosh, 2000 and Gaerner and Short 2009** ). This estimate of the flow of services received by the households must be comparable across households. If two households with the same number of members and age structure reside in a home of similar characteristics, both should be measured as having the same flow of housing services.

The literature has pointed out several considerations that need to be accounted for in the estimation of housing services. A natural choice to capture the market value of the services of any dwelling could be the rent paid by its tenant. In the cases of owners, or households that received their dwelling free of charge (such as a fringe benefit) the rent is unknown. An approximation of the rental value is sometimes obtained by asking a self‐reported guess of a rental price of the dwelling if the household were to rent it. Finally, to correct for misreporting, missing information or to correct potential survey coding errors, analysts rely on the use of hedonic models to derive an imputed rental value ( **Freeman 1993, Sirmans et al. 2005,** and **Balcazar et al., 2014** ).

A much less explored aspect of the estimation of housing services is the implication of rental regulations, such as rent control. Most studies analyzing rent control, a form of rental regulation, focus on its distortionary effects on the housing market. These include price distortions in uncontrolled housing ( **Fallis and Smith, 1984, Frankena, 1975 and Hubert, 1993** ) as well as a misallocation of renters ( **Glaeser, 1996 and Glaeser and Luttmer, 2003** ). On the supply side, rent control results in the deterioration of building units as maintenance costs exceed the rent paid, which lead to landlords deciding not to invest ( **Albon**

> 2 Source: Own calculations based on European Union Statistics on Income and Living Conditions (EUSILC), 2011.

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