Housing Search and Rental Market Intermediation

Abstract

Rental brokers as the matchmakers between tenants and landlords contribute 80% of the rental listings in certain markets, but how they smooth the search friction and transmit policy impacts is not well understood. This paper is the first to use a listing-agent matched data set from an online platform to show the heterogeneous impact of the listing capacity of a broker, i.e. the agent size, on the rental market outcomes. I document that brokers with greater listing capacity are related to lower rents and shorter listing duration. The dispersion cannot be fully explained by the amenity difference of rentals and points to a sizable agent impact that a broker with greater capacity lists a rental at a lower rent. I develop a search model that features a search-and-matching process in which the capacity constraints of brokers interact with the tenant coordination friction. The capacity constraints differentiate brokers’ ability to coordinate tenant search. The smaller rent premium for listings by larger brokers reflects the capacity benefit that larger brokers coordinate tenant search better by reducing the likelihood of facing a binding capacity constraint. An endogenous agent distribution of the listing capacity, which summarizes how frictional the rental market is, arises in the model. I evaluate the counterfactual effects of two rental market policies. First, I show that expanding the brokerage sector will not benefit tenants in the search process. As the mean agent size decreases, the rental market becomes more frictional. Second, I evaluate the impact of shifting the commission liability from tenants to landlords, which is central to the New York rental market reform. As the equilibrium rent increase cannot fully compensate the commission cost on landlords, the policy decreases rental supply and makes searching tenants worse off. I characterize the optimal allocation of the broker’s fee and show that brokers with greater listing capacity should list more rentals with the fee paid by landlords.