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Advertising and Natural Vacancies in Rental Housing Markets
Author(s) -
Read Colin
Publication year - 1988
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.00460
Subject(s) - renting , economics , microeconomics , incentive , matching (statistics) , cournot competition , statistics , mathematics , political science , law
We formulate a model that explains vacancy durations arising from lags in matches between the suppliers and demanders of housing units. We emphasize rental housing markets in this exposition although the model could be extended to competitive or noncompetitive rental or home‐ownership markets. In the case of rental markets, if tenants do not immediately inform landlords upon initiating search for a new unit, landlords are delayed in their search for a new tenant. These matching delays induce a positive natural vacancy rate that cannot be reduced to zero, even in competitive markets. Price‐taking landlords are, however, able to affect the resulting vacancy duration through advertising in a Cournot‐Nash equilibrium and will, in general, invest in inefficient levels of advertising. As a consequence, there may be a role for public policy to provide incentives that would induce noncooperative landlords to choose the vacancy cost‐minimizing advertising solution.