The Transitory and Legacy Effects of the Rental Externality on House Price and Liquidity
Geoffrey K. Turnbull
Georgia State University - Department of Economics
University of Georgia
February 22, 2012
Journal of Real Estate Finance and Economics, Vol. 44, No. 3, 2012
It is widely believed that tenant-occupied houses do not show as well as owner-occupied or even vacant units and are harder to sell. These short term or transitory marketing effects should disappear in subsequent sales by owner-occupiers. Overuse by tenants and poor maintenance by landlords, however may lead to longer term or legacy effects on value and liquidity. We use a 20 year data series on house transactions to estimate these separate effects in a simultaneous model of price and liquidity. The results reveal strong transitory renter effects on both value and liquidity consistent with lower buyer willingness-to-pay. We do not find persistent legacy effects from prior use as rental property. Instead, there appears to be unmeasured quality or a characteristic common to houses suitable for rent that leads to permanently lower market values regardless of previous use in that capacity.
Keywords: rental externality, rental house, liquidity, time on market
JEL Classification: D83, R21, R31Accepted Paper Series
Date posted: February 22, 2012
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