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Avenging the tenants: regulating the middle man's rents

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  • Bakker, Jan David
  • Datta, Nikhil

Abstract

We explore the role of intermediaries in the rental market. Using novel UK data on fees letting agencies charged to both tenants and landlords, combined with a matched property-agency listings dataset, we study the effects of a policy that regulated the fees charged to tenants. We estimate pass-throughs of the tenant fee price cap to landlord fees and rental prices, explore demand responses, and entry and exit of both letting agents and landlords. Agents absorb 70% of the regulation and landlords the remaining 30%. Micro-BLP estimates imply a landlord-agency demand elasticity of -1.6 and a second-order elasticity of 9.7 suggesting a highly concave local demand response. Tenant demand is completely unresponsive to the tenant fee reduction. There is no market exit of landlords or agencies. Hence, the policy successfully reduced the cost of renting without any adverse effects. Our results are consistent with letting agents extracting rents from tenants due to tenants' inattention to fees.

Suggested Citation

  • Bakker, Jan David & Datta, Nikhil, 2024. "Avenging the tenants: regulating the middle man's rents," LSE Research Online Documents on Economics 126810, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:126810
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    File URL: http://eprints.lse.ac.uk/126810/
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    References listed on IDEAS

    as
    1. Joan Monràs & José Garcia Montalvo, 2021. "The effect of second generation rent controls: New evidence from Catalonia," Economics Working Papers 1836, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 2022.
    2. Patrick Bayer & Fernando Ferreira & Robert McMillan, 2007. "A Unified Framework for Measuring Preferences for Schools and Neighborhoods," Journal of Political Economy, University of Chicago Press, vol. 115(4), pages 588-638, August.
    3. Joan Monràs & José García-Montalvo, 2022. "The Effect of Rent Controls along the 'Excess' Price Distribution," Working Papers 1345, Barcelona School of Economics.
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    More about this item

    Keywords

    housing policy; rental market; two-sided market;
    All these keywords.

    JEL classification:

    • 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
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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