Rent Guarantee Insurance

Boaz Abramson and Stijn Van Nieuwerburgh

No 19216, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: A rent guarantee insurance (RGI) policy makes a limited number of rent payments to the landlord on behalf of an insured tenant unable to pay rent due to a negative income or health expenditure shock. We introduce RGI in a rich quantitative equilibrium model of housing insecurity and show it increases welfare by improving risk sharing across idiosyncratic and aggregate states of the world, reducing the need for a large security deposits, and reducing homelessness which imposes large costs on society. While unrestricted access is not financially viable with either private or public insurance providers due to moral hazard and adverse selection, restricting access can restore viability. Private insurers must target better off renters to break even, while public insurers focus on households most at-risk of homelessness.

JEL-codes: D15 D31 D52 D58 E21 G22 G52 H71 R28 (search for similar items in EconPapers)
Date: 2024-07
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