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Equilibrium Excess Demand in the Rental Housing Market (revised)


  • Katherine Cuff
  • Nicolas Marceau


We 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.

Suggested Citation

  • Katherine Cuff & Nicolas Marceau, 2007. "Equilibrium Excess Demand in the Rental Housing Market (revised)," Cahiers de recherche 0744, CIRPEE.
  • Handle: RePEc:lvl:lacicr:0744

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    References listed on IDEAS

    1. John M. Quigley & Steven Raphael, 2004. "Is Housing Unaffordable? Why Isn't It More Affordable?," Journal of Economic Perspectives, American Economic Association, vol. 18(1), pages 191-214, Winter.
    2. John M. Quigley & Steven Raphael & Eugene Smolensky, 2001. "Homeless In America, Homeless In California," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 37-51, February.
    3. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    4. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
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    Cited by:

    1. Deffains Bruno & Roussey Ludivine, 2011. "The Multiplier Effect of Public Expenditure on Justice: The Case of Rental Litigation," Review of Law & Economics, De Gruyter, vol. 7(1), pages 243-263, August.

    More about this item


    Tenancy Default; Excess Demand; Rental Housing Policies;

    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, Pricing, and Design - - - Perfect Competition

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