Income decline, financial insecurity, landlord screening and renter mobility

Abstract

Renters move frequently despite their low income elasticity of rent and high transactions cost. In this paper we test the hypothesis that negative economic shocks and financial insecurity are at the root of the mobility of continuing renters. Studies of homeowners with negative equity and in financial trouble help to guide our analysis. We define a negative economic shock as a decline in income, and financial insecurity as low liquid assets relative to rent, and low income. We address landlord screening – its existence has been well documented in recent literature. This indicates that, contrary to the standard theory, the household and the landlord jointly make the move-in decision and either may instigate a move out. We test our hypotheses using the Survey of Labour and Income Dynamics (SLID) for the years 1994–2011, creating a data set of major income earners and their households in two adjacent years. We select only continuing renters who do not move for job reasons. Using a random effects logit model which passes a Hausman test, we find that a negative income shock and financial insecurity have significant effects on mobility in specifications controlling for transaction costs, demographic characteristics, and landlord screening.