Abstract

This paper considers the effect of rental externality and protection of tenants on housing quality. Rental externality means that the quality of renter-occupied housing is lower than that of owner-occupied housing, because asymmetrical information prevents the proper functioning of the rental contract, which obliges a tenant to repair completely the housing. Protection of tenants can also reduce the quality of the accommodation, because the protection can cause a decrease in profitability for the landlord and overutilization of the dwelling by tenants. Using the ordered logit model and the panel logit model with Garman Socio-Economic Panel, I obtained the empirical results that support theoretical predictions, although the quality of rental housing in Germany is relatively good.

JEL-Classifications: R38, K11