Do owners take better care of their housing than renters?

According to conventional wisdom, homeowners take better care of their hous ing than do renters, as a result of the rental externality. We argue that t wo forms of homeowner externality potentially create similar incentives for owners to undermaintain their housing. The first is due to the inability o f prospective buyers to fully observe past seller maintenance, and the seco nd is a result of the limited liability of borrowers in the event of mortga ge default. Empirical analysis verifies the existence of the mortgage exter nality, but we find no evidence for the resale externality.