The Transitory and Legacy Effects of the Rental Externality on House Price and Liquidity

The Transitory and Legacy Effects of the Rental Externality on House Price and Liquidity It is widely believed that tenant-occupied houses do not show as well as owner-occupied or even vacant units and so are harder to sell. These short term or transitory marketing effects should disappear in subsequent sales by owner-occupiers. Overuse by tenants and poor maintenance by landlords, however may lead to longer term or legacy effects on value and liquidity. We use a 20 year data series on house transactions to estimate these separate effects in a simultaneous model of price and liquidity. The results reveal strong transitory renter effects on both value and liquidity consistent with lower buyer willingness-to-pay. We do not find persistent legacy effects from prior use as rental property. Instead, there appears to be unmeasured quality or a characteristic common to houses suitable for rent that leads to permanently lower market values regardless of previous use in that capacity. The Journal of Real Estate Finance and Economics Springer Journals

The Transitory and Legacy Effects of the Rental Externality on House Price and Liquidity

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Springer US
Copyright © 2010 by Springer Science+Business Media, LLC
Economics; Regional/Spatial Science; Financial Services
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