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The Impact on Rent from Tenant and Landlord Characteristics and Interaction

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  • Erling Røed Larsen
  • Dag Einar Sommervoll

    ()
    (Statistics Norway)

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    Abstract

    Owner-occupied housing services and rented housing services are often considered close substitutes, and both house price and rental price indices rely on regressions based on dwelling and location characteristics. However, while such characteristics are exhaustive in the owner's market, they cannot capture the additional complexity of rental markets. This paper offers a theoretical framework and an empirical analysis of additional factors that affect rent. The factors comprise three categories: Landlord characteristics, tenant characteristics, and characteristics of the landlord-tenant interaction. We analyze a novel data set sampled from the Norwegian rental market and obtain substantial improvements in explanatory power by including information on tenant and landlord characteristics and interaction. While variation in geographical variables explains 17 percent of the variation in monthly rent; variation in hedonic variables explain only 12 percent. Variation in tenant and landlord characteristics and interaction explains as much as 15 percent of rent variation. The full model captures 44 percent of rent variation and offers insights into the monetary values of landlord type, market mediation, tenure length, tenant type, and services. This additional explanatory power accentuates the difference between the owner's and renter's market, and the results come with ramifications for the general understanding of the rental market, for construction of rental indices, and for the assumption of a rental-equivalence principle in CPI-construction.

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    Bibliographic Info

    Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 467.

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    Date of creation: Aug 2006
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    Handle: RePEc:ssb:dispap:467

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    Related research

    Keywords: hedonic regression; housing market; landlord; rent; rental index; rental market; tenant.;

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    References

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    1. Timothy K.M. Beatty & Erling Røed Larsen & Dag Einar Sommervoll, 2005. "Measuring the Price of Housing Consumption for Owners in the CPI," Discussion Papers 427, Research Department of Statistics Norway.
    2. Steven C Bourassa & Martin Hoesli & Jian Sun, 2004. "What's in a view?," Environment and Planning A, Pion Ltd, London, vol. 36(8), pages 1427-1450, August.
    3. Kenneth Y. Chay & Michael Greenstone, 1998. "Does Air Quality Matter? Evidence from the Housing Market," NBER Working Papers 6826, National Bureau of Economic Research, Inc.
    4. Allen C. Goodman & Masahiro Kawai, 1985. "Length-of-Residence Discounts and Rental Housing Demand: Theory and Evidence," Land Economics, University of Wisconsin Press, vol. 62(2), pages 93-105.
    5. Schmitz, Patrick W., 2002. "Simple contracts, renegotiation under asymmetric information, and the hold-up problem," European Economic Review, Elsevier, vol. 46(1), pages 169-188, January.
    6. Schulz, Rainer & Werwatz, Axel, 2001. "A state space model for Berlin house prices," SFB 373 Discussion Papers 2001,58, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    7. Demougin, Dominique & Fluet, Claude, 2001. "Monitoring versus incentives," European Economic Review, Elsevier, vol. 45(9), pages 1741-1764, October.
    8. Grenadier Steven R., 1995. "Flexibility and Tenant Mix in Real Estate Projects," Journal of Urban Economics, Elsevier, vol. 38(3), pages 357-378, November.
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    Cited by:
    1. Røed Larsen, Erling & Weum, Steffen, 2008. "Testing the efficiency of the Norwegian housing market," Journal of Urban Economics, Elsevier, vol. 64(2), pages 510-517, September.

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