Housing Tenure and Informational Asymmetries

Herman Donner and Fredrik Kopsch

Journal of Real Estate Research, 2018, vol. 40, issue 2, 155-178

Abstract: The paradigm shift of focus from rental apartments to owner-occupied units on the Swedish property market has led to a substantial number of rental apartments being converted to cooperative apartments. Such conversions are typically done at prices below market value. This provides strong financial incentives for tenants involved in such a conversion to use their informational advantage regarding the financial management of a cooperative, compared to less informed neighbors and buyers on the general market. This setting also provides a reliable way of estimating the persistence and effects of such an informational asymmetry through nearly 200,000 apartment transactions in Stockholm, Sweden, during the period of 2005 through mid-2014. We find that insiders take advantage of an informational asymmetry as newly formed cooperatives set monthly fees artificially low to increase the probability of a conversion as well as apartment values. However, market participants seem to discount this informational asymmetry as recently converted apartments sell at lower prices.

Date: 2018
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DOI: 10.1080/10835547.2018.12091496

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