Expectations, Intermediaries, and the Term Structure of Rental Housing Supply

Abstract

Housing decisions depend critically on the supply of long-term rental housing, yet surprisingly few studies examine the determinants of this supply. Based on term structure theories of asset prices and extrapolative beliefs, we hypothesize that housing market conditions shape the term structure of rental supply. Using unique contract-level data between landlords, tenants, and a large rental agency in China, we show that growth in home prices, transaction volume, and rent significantly inhibit the supply of longer-term rental housing. Rental agencies increase this supply by financing renovation. Our findings uncover a cross-market spillover mechanism that affects housing stability, which can be generalized to understand the determinants of long-term capital supply.

Keywords: Rental housing, housing price, intermediary, extrapolation, expectation, housing stability

JEL Classification: G12, G21, G23, L85, R31, R38