Costs of owner-occupied and rented housing / Max Neutze.

Abstract

The owner occupied and rental markets for housing are closely related, especially on the supply side, and changes in one part of the market have impacts on the other. The relative costs of providing rental and owner occupied housing are directly influenced by interest rates, rates of taxation, rates of inflation and appreciation of dwelling prices, and the amount of the owner's equity in the dwelling. In periods of high inflation costs of landlords fall relative to those of owner occupants because landlords can deduct the total cost of interest on borrowed capital, including the inflationary component. Even at modest rates of inflation this more than offsets the tax exemption of the owner occupant's imputed rent. The model used would suggest that costs of providing rental housing have fallen quite sharply relative to prices since the mid-1960s. Actual rental yields have fallen much less. Some possible explanations for the difference, which implies that landlords do not pass on capital gains, are provided. The fall in rents relative to prices that has occurred does not appear to have induced any major shift towards renting; several reasons are advanced. Show more