The impact on rent from tenant and landlord characteristics and interaction

Abstract

Abstract:Owner-occupied housing services and rented housing services are often considered close substitutes, and both house price and rental price indices rely on regressions based on dwelling and location characteristics. However, while such characteristics are exhaustive in the owner's market, they cannot capture the additional complexity of rental markets. This paper offers a theoretical framework and an empirical analysis of additional factors that affect rent. The factors comprise three categories: Landlord characteristics, tenant characteristics, and characteristics of the landlord-tenant interaction. We analyze a novel data set sampled from the Norwegian rental market and obtain substantial improvements in explanatory power by including information on tenant and landlord characteristics and interaction. While variation in geographical variables explains 17 percent of the variation in monthly rent; variation in hedonic variables explain only 12 percent. Variation in tenant and landlord characteristics and interaction explains as much as 15 percent of rent variation. The full model captures 44 percent of rent variation and offers insights into the monetary values of landlord type, market mediation, tenure length, tenant type, and services. This additional explanatory power accentuates the difference between the owner's and renter's market, and the results come with ramifications for the general understanding of the rental market, for construction of rental indices, and for the assumption of a rental-equivalence principle in CPI-construction.

Testing the efficiency of the Norwegian housing market

“…The relationship between the rent tenants pay to landlords and the implicit rent homeowners enjoy, is a contestable one. First, as Røed Larsen and Sommervoll (2006) demonstrate, tenant rents include risk premia and option prices that do not apply to the owners' market. Thus, the development of rent for tenants is not necessarily representative of the development of implicit rent for owners, even if our owned objects appear quite similar to rented ones in size, quality, and location.…”

Classification and Selection of Tenants in Residential Real Estate: A Constructivist Approach

“…No landlord wishes to bear the problems that a "bad" tenant can bring, in particular since the relationship between tenant and landlord is often expected to be long term. In fact, it begins before the contract is even signed, and continues through rents paid, services and upgrades, until the tenant leaves (Larsen & Sommervoll, 2009;Gbadegesin & Oletubo, 2013).…”

The Engel Curve of Owner-Occupied Housing Consumption

“…This survey obtains information on market rent, attributes of the rental object, spatial coordinates, and other determinants of rent for several thousand rental objects; see Røed Larsen and Sommervoll (2009) for results on the first vintage of this survey. The survey itself is described in some detail below.…”

“…Røed Larsen and Sommervoll (2009) point to the important fact that transferring ownership involves a one-shot interaction between a seller and a buyer while renting involves an inter-temporal interaction between a tenant and a landlord. Since the quality of the interaction affects observed market rents it may also affect imputed rent, and then imply an estimation bias because such relationships do not apply for owners.…”