Tenancy Default, Excess Demand and the Rental Market

Katherine Cuff Nicolas Marceau
Authors registered in the RePEc Author Service: Nicolas Marceau and Katherine Cuff

Department of Economics Working Papers from McMaster University

Abstract: We develop a model of a competitive rental housing market with an endogenous rate of tenancy default arising from income uncertainty. Potential tenants must choose to engage in a costly search for rental housing, and must commit to a rental agreement before the uncertainty is resolved. We show that there are two possible equilibria in this market: a market-clearing equilibrium and an equilibrium with excess demand. Therefore, individuals might not have access to rental housing because they are unable to afford to look for housing, they are unable to pay their rent, or with excess demand in the market they are simply unable to find a rental unit. We show that government regulations affecting the cost of default to the housing suppliers and the quality of rental units can have different effects on the equilibrium variables of interest — rental rate, quantity demanded and supplied, and access to rental housing — depending on the type of equilibria in the market. A numerical example illustrates these results.

Keywords: Tenancy Default; Excess Demand; Rental Housing Policies (search for similar items in EconPapers)
JEL-codes: D41 R21 R31 R38 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2007-11
New Economics Papers: this item is included in nep-bec, nep-mic and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:mcm:deptwp:2007-08

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