The Market for Residential Leaseholds
THE market for residential leaseholds is a large one, and of considerable importance to the economy. As indicated in Chapter 3, the number of rented nonfarm homes has exceeded the number of owner-occupied homes at each census date since 1890; in 1940 there were over sixteen million rented homes with an aggregate annual rental estimated as approximately $4.7 billion.1 Differences and similarities may be observed between the market in which leasehold estates are bought and sold and the market for homes in fee, and these differences are largely accounted for by the attributes of the rights represented by a leasehold estate. Accordingly, before examining the characteristics of the market for leaseholds and its behavior under different economic conditions, it will be useful to examine the attributes of leasehold estates.
The outstanding characteristics of the residential leasehold estate are its short term, usually one year or less, the fact that the purchaser of the residential leasehold estate is ordinarily the direct user of the services which use and occupancy provide, and the fact that these services can be consumed only at the specified location. The short term of the leasehold and the fact that rental payments are made at intervals during the period of the lease agreement mean that in this market there is not likely to be a financing problem. From the financial viewpoint, the chief importance of the leasehold estate is its effect on the financing of other types of transactions, mainly the sales of homes in fee. The nature of the service conveyed means that the market, like the market for homes in fee, consists of numerous localized markets which, while they may overlap, are never identical.____________________