DP15102 Agreements Must Be Kept? Residential Leases during Covid-19

Author(s): Itai Ater, Yael Elster, David Genesove, Eran Hoffmann
Publication Date: July 2020
Keyword(s): Bargaining, contract renegotiation, COVID-19, Relational Contracts, rental
JEL(s): C7, D86, R3
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15102

This paper studies how a Covid-19 lockdown affected residential lease payments. Survey data on 1511 Israeli renter households show nearly one in eight households not paying full rent during the lockdown, with these households holding back, on average, a third of their contractually due rent. Financially fragile households with greater income cuts, and households with leases lacking provisions that effectively provide for damages upon non-payment pay a lower share of contract rent. So do households with more frequent encounters with their landlord, or longer tenure in the apartment. Bargaining and relational contracts theories help explain these results.