Abstract
The deregulation of the UK rental market since 1989 has made it an important component of the private housing sector. I extend the standard housing model by adding a substitute rental good to the inverted demand equation. Rents are modeled in a similar fashion, and an incomplete information model is used to analyse landlord behaviour in adjusting rental stocks. Rental data is obtained by enhancing the methodology of Weeken (2004) to reduce reliance on the inappropriate RPI rent index. Error correction models are used to test this theoretical structure; however due to lack of data in markets where adjustment is likely to be extremely slow the models are not particularly good empirical fits. Nevertheless simulation shows that under a wide range of assumptions adding the rental tenure increases the level of house building required to achieve a target level of house price growth. The views expressed in this paper are the authors own and do not reflect their employers.
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