On Landlord’s Discriminatory Behaviour

Working Papers 20 Loikkanen Heikki A.

In this paper we assume that rents cannot be differentiated from one tenant to another even though the value of different types of tenants may differ for landlords. On the other hand, there is uncertainty about the characteristics of tenants candidates into classes using some identifiable characteristic which is expected to be related to the value of lease. We assume two classes (like households with and without children) such that landlords´s expected maintenance costss of his rental unit can be taken to differ in the classes. The landlord also has subjective conceptions of the arrival rates of the two types of tenant candidates. We solve the landlord´s optimal policy for choosing a tenant to his vacant unit assuming a finite (intended) lease duration. In our firs model the optimal is simply charactrelized by a time-point, t2, such that before it only “good” tenants are acceptable whereas after it any type is acceptable. When expected costs of getting rid of tenants at the enod of intended lease period are taken into account optimal policy becomes different. Assuming differences in the latter costs we can get two switches in optimal policy, too. The basic model is applied to discuss the effects of inter-urban mobility on discrimination under rent control and to consider the determination of bribes that make different types of tenant candidates equal from the landlord´s point of view. Finally, we present some empirical evidence on discrimination as experienced by Finnish housing allowance recipients.