Housing Search and Rental Market Intermediation

Real estate agents, also known as brokers, play a key role in smoothing frictions in housing markets. My dissertation examines the brokerage behaviors in the residential rental housing market, which is not well understood due to the lack of empirical evidence but is crucial to the policy discussion of rent affordability and housing market efficiency. Using a unique listing-agent matched data set about the Manhattan rental market, I document a large scale of broker heterogeneity in terms of rental listing supply and show how  broker’s size affects rental market outcomes. Larger brokers—those who have more listings in the market—are associated with lower rents and shorter listing time. The dispersion cannot be fully explained by the amenity difference and points to a sizable agent impact. I build a directed search model of tenants, landlords, and brokers that features the return-liquidity tradeoff and the listing capacity constraint of a broker. The model points out that the smaller rent premiums from larger brokers reflect the capacity benefit of coordinating tenant search better.

I use the model to evaluate the impacts of rental policies that are particularly relevant to the New York rental market reform put forward by the Housing Stability and Tenant Protection Act (HSTPA) of 2019. First, I examine whether a lower barrier of entry to the brokerage sector benefits tenants in the search process. I show that expanding the brokerage sector could be harmful to tenants and landlords because it may lead to fewer listings per broker and, as a result, higher rent and longer listing times. This finding supports the regulatory policies to curb the excess entry of brokers, especially in unaffordable cities like New York and Boston. Second, I evaluate the impact of shifting the commission liability from tenants to landlords. HSTPA prohibits the “with-fee” listings that ask tenants to pay for the brokerage service, which affects about 75 percent of the rental listings. The policy change reduces the upfront cost to tenants, but the extra cost to landlords will be partially passed on in the form of higher rent, leading to an ambiguous total effect. I show that, after the policy change, landlords cannot be fully compensated by the higher rent, which leads to a decrease in the rental supply. Moreover, the average agent size will be smaller, suggesting a more frictional market faced by the searching tenants.

In summary, my study builds a tractable framework of brokerage intermediation in the housing markets, linking brokers’ listing behavior and market-level search friction and providing policy guidance to housing market reform.

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