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Modeling Landlord’s Optimal Choice of Rental Contract Type in the Korean Rental Housing Market

Chang-Moo Lee ORD ID 1

1한양대학교

Accredited

ABSTRACT

This paper develops a theoretical model for optimal choice of landlords on rental contract type. The developed theoretical model shows that landlords with strong risk aversion may prefer a lower deposit with a higher monthly rent whereas those with weak risk aversion prefer a higher deposit with a lower monthly rent. Also, sales market condition affects their choice on rental contract type. When expecting a higher price appreciation, landlords prefer Chonsei. Also, in the case of a higher price volatility, they prefer a lower deposit with a higher monthly rent. The empirical estimation results strongly support the theoretical arguments. Specifically, young landlords or the renters owning other rental houses prefer Chonsei, while old landloards or the homeowners renting some parts of their house prefer a higher monthly rent with a lower deposit. Interestingly, in the time period of high price appreciation and low price volatility, landlords choose Chonsei or a lower monthly rent with a higher deposit.

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* References for papers published after 2023 are currently being built.

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