Equilibrium Excess Demand in the Rental Housing Market (revised)
AbstractWe develop a model of a competitive rental housing market with endogenous default due to income uncertainty. There is a large number of identical, potential suppliers who each face a fixed cost of entering the rental housing market. Those suppliers who choose to enter decide how many rental units to supply and the rental price to charge. Potential tenants who differ in their income and face an uninsurable income shock choose whether to engage in a costly search for rental housing. If they find a rental unit, then they must commit to a rental agreement before the income uncertainty is resolved. Consequently, some tenants may default on their rental payments. We show that tenancy default can explain persistent excess demand in the rental housing market without any government price regulations. With excess demand in equilibrium, some individuals are simply unable to find rental housing. We study both government regulations affecting the cost of default to the housing suppliers and the quality of rental units, and the imposition of rent control. We show that rent control can have non-standard effects on the access to rental housing and on welfare.
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Bibliographic InfoPaper provided by CIRPEE in its series Cahiers de recherche with number 0744.
Date of creation: 2007
Date of revision:
Tenancy Default; Excess Demand; Rental Housing Policies;
Find related papers by JEL classification:
- R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
- R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
- R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy
- D41 - Microeconomics - - Market Structure and Pricing - - - Perfect Competition
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-02-16 (All new papers)
- NEP-MIC-2008-02-16 (Microeconomics)
- NEP-URE-2008-02-16 (Urban & Real Estate Economics)
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