**and Stafford, 1990 and Frankena, 1975** ). Others have shown an impact on tenant mobility,<sup>3</sup> and tenancy duration ( **Munch and Svarer, 2002 and Nagy, 1995** ). Finally, some literature has assessed whether regulation ends up benefiting the intended recipients and if the benefits outweigh the allocative distortions ( **Gyourko and Linneman, 1989, Ejarque and Kristensen** , 2015, **Arnott and Igarashi** , **2000, Arnott, 2003** ).

In this paper, we focus on exploring the implications of rent control in the estimation of welfare, poverty and inequality. We analyze the case of the Arab Republic of Egypt, where rental regulation has a very long history that permeates to this day. The country’s rental regulation started after World War I and continues to affect a large share of the housing market (mainly) in Egypt’s urban areas. The most recent version of the rental regulation, the law of 1977, has not only frozen rents for all dwellings under its jurisdiction, but allows that any rental contract for an apartment or house regulated under it can be passed down in generations. The 1977 law still applies to an estimated 11 percent of dwellings in the country, and 33 percent in Metropolitan Egypt. By effectively creating a gap between the rent that can be charged to different dwellings, regulation raises the important question on how to correctly measure housing services and welfare across all households in Egypt.

Using previously unavailable detailed data of Egypt’s Household Income, Consumption and Expenditure Survey (HIECS) for the year 2012/13, we apply a version of the hedonic model based on the log of rental values ( **Malpezzi, 2003** ) to correctly estimate the housing services of 1977‐law renters. We find evidence that previous studies significantly underestimated the welfare levels of certain Egyptian households, especially in urban areas. We also find evidence of overestimation in overall inequality, especially that of within region inequality but underestimation of between‐region inequality. Other indicators, such as poverty levels are also found to decline in metropolitan areas once the value of rents among tenants under rent control is adjusted. Given the renewed global interest in tracking the elimination of poverty and the recent discussions of the role of inequality in social movements, this paper fills an important gap in the literature. Heavily regulated markets are still commonplace in many regions in the world. The results found in this paper highlight the potential misrepresentation of the evolution of welfare in the presence of housing regulation and call for a clearer understanding and transparency of the underlying methodologies used in such publications.

This paper is organized as follows: Sections 2 and 3 detail the context of housing market regulation in Egypt and the literature on the use of hedonic models in rent imputation literature respectively. It also outlines the data we use and presents the descriptive statistics to bolster the case for considering adjustments in reported rent by households living in regulated dwellings. We propose a hedonic model to account for these adjustments and section 4 reports its consequences for measurement of welfare. Section 5 concludes.

> 3 For example, **Ault, Jackson and Saba** (1994) find that New York City’s rent control reduces mobility and that around 80 percent of the difference in mean expected tenure between controlled and uncontrolled units is attributable to efficiency losses from controls. **Gyourko and Linneman** (1989) find that the size of the tenant's subsidy has an inverse relationship such that the larger the subsidy, the less likely a tenant will move.

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