Events at CERGE-EI

Sidharth Moktan, M.Res.

The London School of Economics & Political Science, England

Abstract: A large and growing share of households rent from private landlords. I empirically analyze how landlord supply constraints affect welfare and housing affordability by influencing rents, prices, and the allocation of houses between the rental and owner occupied sectors in the UK in the presence of household borrowing constraints. I combine several novel datasets of UK property markets and document three key facts that suggest the impact of landlord supply constraints on the housing market: (i) housing quality is segmented between the rental and owner-occupied sectors, with rentals generally offering lower quality, (ii) cities with more pronounced quality segmentation tend to have higher rent-to-price ratios, and (iii) in more segmented cities landlords have fewer assets. To quantify the effect of landlord supply constraints on the housing market, I develop and estimate a two-sided assignment model which features households’ optimal choice of housing quality and tenure (i.e., the choice to rent or own) in the presence of borrowing constraints, landlords’ profit-maximizing choice of quality to rent out, and endogenous quality segmentation and rent-to-price ratios which are determined in equilibrium. I conduct counterfactual experiments to show that differences in landlord supply constraints explain much of the variation in quality segmentation and rent-to-price ratios observed across cities.

Full Text: An Empirical Equilibrium Model of the Markets for Owner-Occupied and Rental Housing