> Also growing population and people moving to areas where the jobs are. Most recently: pandemic refugees from NYC and California settling in adjacent areas. When demand changes for a good with inelastic supply you see large excursions in price.
Right, when there is a disruption. Say there is an increase in jobs in city A and wages rise by 10%. Say there is a decrease in jobs in city B and wages decrease by 10%.
Now what must happen is some kind of population transfer from B to A. We also know that rents will rise in A and fall in B.
But how does this happen? Via evictions in B as people can no longer afford the existing rents and move out. That adds to the rental supply in B as landlords struggle to find tenants, which causes rents to fall. Similarly in A, there is a bidding war for apartments and rents rise. This is how the market adjusts to the new reality of jobs and wages in both cities.
Now covid had lots of these disruptions. Entire job markets were shutdown, others thrived.
So what happens when the government puts a freeze on evictions in both A and B. Then everything is frozen except for the handful of new construction in A and B, so you get massive price spikes and rent too high in city A as well as rents being too high by not adjusting downward in city B.
The effect of this is that prices are always much higher than the market clearing price, which is what this paper demonstrates.
This is also what happens when you try to make economic interventions based on sentimental intuition -- "it's not fair that you should be evicted if you are laid off" -- often the exact opposite of what you want ends up happening, as housing becomes too expensive for everyone. What has to happen is that people must live in the housing they can afford. Attempting to live in housing that they can't afford always causes excessively high prices for the majority.