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Working Papers

Safety in Renting

Working paper #729
Todd Sinai

A recent decline in the home ownership rate raises the possibility that some people now perceive home-owning as too risky. However, renting is also risky. The author outlines two risks that only owners avoid: low-mobility households can lock in their housing costs, and all households can hedge themselves against changes in the cost of housing from moving. On the other hand, when tenants move, they avoid uncertainty over the sale price of a house. The author shows which kinds of households would best avoid risk by renting or owning. The recent decline in the home ownership rate does not appear to be driven solely by natural renters returning to renting, and the article issues a challenge to landlords to find ways to make renting less risky for natural owners.

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