Housing rent rigidity under downward pressure: Unit-level longitudinal evidence from Tokyo

This paper documents housing rent rigidity under downward pressure, using the monthly household/room-level movement of housing rents through tenancies and vacancies in Tokyo during the period 2000Q1–2017Q2. The consistent overall rent rigidity exists because of the small extensive margin (limited adjustment opportunity) and small intensive margin (rare adjustment in the contract renewal stage). We observe rent rigidity leading to a “tenure surcharge,” that is, sitting tenants pay higher rents than the market rent level because the alternative—high moving costs for tenants—is less attractive. The downward rent rigidity obviously cannot rationalize the conventional explanation of upward rent rigidity in an inflationary context, such as depreciation and/or tenure discount. We show, however, that landlords care about retaining good long-term tenants by offering a small discount during the tenancy, along with a small degree of time/state-dependent adjustments.