Scandinavian Working Papers in Economics

Working Paper Series,
Royal Institute of Technology, Department of Real Estate and Construction Management & Centre for Banking and Finance (cefin)

No 16/3: Housing Tenure and Informational Asymmetries

Herman Donner () and Fredrik Kopsch
Additional contact information
Herman Donner: Department of Real Estate and Construction Management, Royal Institute of Technology, Postal: Department of Real Estate and Construction Management , Royal Institute of Technology, Brinellvägen 1, 100 44 Stockholm, Sweden
Fredrik Kopsch: Departement of Technology and Society / Division of Real Estate Science, Postal: Lund University, Lund, Sweden, Ole Römers väg 3D, 223 63, Lund, Sweden

Abstract: The paradigm shift of focus from rental apartments to owner occupied units on the Swedish property market has led to a substantial number of rental apartments being converted to cooperative apartments. Such conversions typically are done at prices far below market value. This provides a setting with strong financial incentives for tenants involved in such a conversion to take advantage of their informational advantage regarding the financial management of a cooperative, as compared to less informed neighbors and buyers on the general market. This setting also provides a reliable way of estimating the persistence and effects of such an informational asymmetry through nearly 200,000 apartment transactions in Stockholm, Sweden during the period of 2005 to mid-2014. We find strong support towards a behavior concurrent with moral hazard; as such insiders mismanage the cooperatives by setting monthly fees artificially low in order to increase the probability of a conversion as well as apartment values. Lastly, market participants seem to discount this informational asymmetry as recently converted apartments sell at lower prices.

Keywords: Informational Asymmetries; Real Estate; Housing Tenure

JEL-codes: D80; D82; R30; R31

23 pages, February 24, 2016

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