We model the provision of owner-occupied versus rental housing services as a competitive search economy where households have private information over their expected duration. Owning is assumed inefficient but does solve the private information problem. With public information, households with low vacancy hazard rates pay lower rents and search in thicker markets. With private information, housing is under-provided to long-duration households to discourage short-duration households from searching there. If a household has a high enough expected duration, rental distortions become large enough that she prefers to own. Using a novel data set of rental market listings, we find that patterns of rental market thickness, rents and home ownership rates are consistent with a private information problem.
Presented by:
Jonathan Halket (Department of Economics)
Date & time:
March 13, 2013 1:00 pm
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