Alexander Huber
Vienna University of Economics and Business
Sofie R. Waltl
University of Cambridge
Abstract
This paper studies whether inflation-indexed rental contracts can generate a self-reinforcing feedback loop between rents and aggregate inflation, and whether state-contingent rent regulation can weaken this mechanism. We examine Austria’s inflation-contingent rent brake, a novel policy that limits the pass-through of consumer price inflation into indexed rents when inflation exceeds three percent. Using Austrian Microcensus data from 2010 to 2025, we construct quality-adjusted rent indices based on repeat observations and chained adjacent-period hedonic methods, allowing us to track rent dynamics across regulated and less regulated rental-market segments. We document a strong pre-reform association between lagged CPI inflation and subsequent rent growth, consistent with widespread CPI-linked rent indexation. After the intervention, this relationship weakens markedly for net rents, the component most directly exposed to contractual indexation, while remaining stronger for broader housing-cost measures that include operating costs, utilities, and other pass-through charges. The findings suggest that inflation-contingent rent brakes can dampen rent-driven inflation persistence without imposing permanent restrictions on rent adjustment. More broadly, the Austrian case illustrates how housing-market institutions can interact with inflation measurement and how targeted regulation may function as an automatic stabilizer during exceptional inflationary episodes.
JEL Codes: E31; R31; R38; C43; C23.
Keywords: Rent inflation; rent indexation; inflation persistence; rent control; CPI; housing costs; Austria
Sofie R Waltl 