The Transitory and Legacy Effects of the Rental Externality on House Price and Liquidity

Posted: 22 Feb 2012

See all articles by Geoffrey K. Turnbull

Geoffrey K. Turnbull

Georgia State University - Department of Economics

Velma Zahirovic-Herbert

University of Georgia

Date Written: February 22, 2012

Abstract

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, R31

Suggested Citation

Turnbull, Geoffrey K. and Zahirovic-Herbert, Velma, The Transitory and Legacy Effects of the Rental Externality on House Price and Liquidity (February 22, 2012). Journal of Real Estate Finance and Economics, Vol. 44, No. 3, 2012, Available at SSRN: https://ssrn.com/abstract=2009506

Geoffrey K. Turnbull

Georgia State University - Department of Economics ( email )

P.O. Box 3992
Atlanta, GA 30302-3992
United States
404-651-0419 (Phone)
404-651-2737 (Fax)

Velma Zahirovic-Herbert (Contact Author)

University of Georgia ( email )

Athens, GA 30602-6254
United States

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