Rental Housing Markets and the Natural Vacancy Rate

Abstract

This paper employs new census vacancy rate data to analyze the price-adjustment mechanism for rental housing. The study extends previous research on this topic, which provided conflicting evidence concerning the traditional theory of rental housing market adjustment (see Smith [10], [11]; DeLeeuw and Ekanem [2]; Eubank and Sirmans [4]; and Rosen and Smith [8]). Cross-section and time-series data are pooled to estimate natural vacancy rates for sixteen United States cities for the 1981-85 period. The analysis further explores the determinants of variation in natural vacancy rates across those metropolitan areas. Copyright American Real Estate and Urban Economics Association.

Estimation of the Rental Adjustment Process

“…Here, too, the variation in natural vacancy rates is implausible, ranging from one to 21 percent. Gabriel and Nothaft (1988), using real housing rents, investigated 16 cities over the shorter 1981-85 time frame and obtained more reasonable natural vacancy rate values of four to ten percent. In a second estimation they treated the natural vacancy rate as endogenous, relating it to such factors as the growth in rental units and population and the level and dispersion of rents in the city.…”

Information and Search on the Housing Market: An Agent-Based Model

“…More precisely, natural vacancy rates are crucial in determining the strong correlations between fluctuations in the vacancy rate and the evolution of rents. Numerous authors report similar results including Gabriel & Nothaft (1988) also in the rental housing market, Shilling et al (1987) and Grenadier (1995) in the office rental market and Hwang & Quigley (2006) in the purchasing housing market. In a rental market for single family homes, higher asking rents have been shown to lead to longer TOMs (Allen et al, 2009).…”

An Agent-Based Simulation of Rental Housing Markets

“…A more thorough analysis was performed by Rosen and Smith (1983) who provided evidence, in a cross city analysis, of the existence of natural vacancy rates that are crucial in determining the strong correlations between fluctuations in the vacancy rate and the evolution of rents. Numerous authors report similar results including Gabriel and Nothaft (1988) in the rental housing market, Shilling et al (1987), Grenadier (1995 in the office rental market and Hwang and Quigley (2006) in the purchasing housing market.…”