Friday, April 27, 2012

Renters vs. Owners - Conflicts of Interest

Owner-occupiers take actions intended to maximize property values, either as part of an effort to maintain and increase resale value, or as a consequence of improving the amenity value of the house for their own use. In contrast, landlords seek to maximize return on investment, which entails maximizing rents while minimizing expenses. As neither landlords nor tenants are able to enjoy the full benefit of making improvements on a house, both groups are inclined to avoid maximizing the amenity value of the house. This can lead to long term disinvestment in the house, causing it to become run-down.