Contract types in the property market

Abstract

Because of the extreme complexity of housing capital, it is difficult to specify the level and quality of housing investment in a legally binding contract. This paper studies relative merits of various contract types when complete contingent contracts are impossible. Contract types considered in this paper are purchase contracts, rental contracts of land, and rental contracts of housing, where the degree of security of tenure is an important choice variable in rental contracts. We focus on two characteristics of the property market: durability of housing capital and the moral hazard problem in housing maintenance.