Payment Performance and Residency Discounts in the Rental Housing Market

Kyoochul Kim

Real Estate Economics, 2020, vol. 48, issue 4, 1168-1197

Abstract: Previous literature on rental housing has studied length of residence discounts by concentrating on turnover cost. I present an analysis of the impact of tenant payment performances on landlord rent setting. First, I establish and simulate a landlord's dynamic optimal rent setting model in light of the tenant's previous rent payment performance. Under some environments, simulation results show an interesting outcome, landlords give rental discount to tenants who had late rent payments. I then use Experian RentBureau data to estimate the relationship between payment history and rent, and find that late payers received subsequent rent discounts during the housing market's expansion period (2002–2007) while payment performance has less or no influence on rent setting after the subprime mortgage crisis. These results are predicted by the simulations of the theoretical model.

Date: 2020
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