Rental externality, tenure security, and housing quality

This paper considers two tenure modes—owner- and renter-occupied housing—and models the effect of the rental externality and tenure security on single-family housing quality. We show that both rental externality and tenure security reduce renter-occupied housing quality when the user’s utilization, which reduces the quality of the accommodation, and the owner’s maintenance, which raises quality, are substitutes. Using single-family housing data in Japan, we obtain empirical results that are consistent with theoretical predictions. These results indicate that conventional wisdom—that the quality of renter-occupied housing is lower than that of owner-occupied housing—is supported for single-family housing in Japan.