Rent Guarantee Insurance *
65 Pages Posted: 2 Apr 2024 Last revised: 2 May 2024
There are 2 versions of this paper
Rent Guarantee Insurance *
Date Written: May 2, 2024
Abstract
A rent guarantee insurance (RGI) policy makes a limited number of rent payments to the landlord on behalf of an insured tenant unable to pay rent due to a negative income or health expenditure shock. We introduce RGI in a rich quantitative equilibrium model of housing insecurity and show it increases welfare by improving risk sharing across idiosyncratic and aggregate states of the world, reducing the need for a large security deposits, and reducing homelessness which imposes large costs on society. While unrestricted access to RGI is not financially viable for either private or public insurance providers due to moral hazard and adverse selection, restricting access can restore viability. Private insurers must target better off renters to break even, while public insurers focus on households most at-risk of homelessness. Stronger tenant protections increase the effectiveness of RGI.
Keywords: D15, D31, D52, D58, E21, G22, G52, H71, R28 housing insecurity, eviction, risk sharing, rent guarantee insurance, security deposit
JEL Classification: D15, D31, D52, D58, E21, G22, G52, H71, R28
Suggested Citation: Suggested Citation