Habitability Laws and the Welfare of Indigent Tenants

Abstract

A FTER three decades of intensive government efforts to improve the lot of those at the bottom of the economic heap, the poor are very much with us, and many are both ill-fed and ill-housed. The various measures taken to improve housing conditions among the poor remain to be evaluated; habitability laws are an example. These laws regulate the relationship between landlord and tenant in that they require the former to provide housing in habitable conditions. By subjecting a lease to the doctrine of caveat venditor, rather than caveat emptor as was done before at common law, these laws greatly extend the warranty of habitability. They provide tenants with remedies in the form of repair and deduct, rent withholding and receivership laws, supplemented by laws that prohibit retaliatory eviction. Good summaries of these laws can be found in a number of places (American Law Institute's Restatement (Second) of Property, Landlord and Tenant, 1974 and Hirsch et al., 1975). This paper examines the welfare effects of habitability laws with respect to indigent tenants. This examination, carried out within a demand-supply system, must take into account the intricate and unique aspects of housing as a commodity. Housing is a complex commodity having both stock and flow characteristics. Our interest is mainly in the latter, i.e., the flow of housing services, an area with serious measurement problems. Specifically, in the day-to-day world we find data neither on the quantity of rental housing services nor on their price. Therefore, a hedonic approach to rental housing services, which estimates empirical rent functions, is used. In this manner, the distinctive characteristics of a rental unit are measured and expressed in a single quantity which reflects the market's consensus about their relative importance. The hedonic approach can, thus, provide shadow housing quantities and prices. Used in conjunction with conventional demand and supply variables, plus habitability law variables, demand and supply functions will be estimated. Finally, these functions permit statements about the effects habitability laws are likely to have on the welfare of landlords and tenants. Specifically, to the extent that such laws are enforced and lead to improved repair and maintenance, tenants' well-being will be enhanced and an upward shift of the demand function will occur. On the supply side, habitability laws can affect maintenance and repair decisions, which together with the potential legal costs will also lead to an upward shift of the supply function. The crucial matter is the relative shift of these two functions and the statistical significance of their difference.