Market for Apartment Swap and Rental Market

This paper develops a theoretical search model of apartment swap in the rental market. Using random matching mechanism, we mimic the informal Swedish swap market, which is characterized by strong rent control and dominant ownership of the apartments by municipalities. Our proposed framework captures supply and demand dynamics of the rental market, segmented into households with rented small or big municipal apartments, searching and trying to swap apartments between each other. In the basic setup, in isolation of rental market, the value of the swap is a function of the structure of the population, probabilities of match, probability of cancelling the swap agreement and the differential in the utility gains of matching swap counter-parties. When integrated with the classical rental market, the swap market reflects not only the supply/demand conditions in the swap market, but also the tightness in the rental market. Vice-versa, a well developed swap rental market affects the rental market, so with an increase in the probability of successful swap of a particular rental apartment, the apartment rent value increases