Diversifying the Suburbs: Rental Supply and Spatial Inequality

• In Event: New Tools for Understanding the Effects of State Housing Reforms

Abstract

Insufficient rental supply in American suburbs limits mobility for financially constrained households unable to afford homeownership. I find that reallocating suburban single-family homes to rentals reduces spatial inequality by increasing access to desirable neighborhoods for non-White and younger households. In my reduced-form analyses, I exploit the entry of large-scale corporate landlords and leverage property-level data on home prices, rents, and tenant characteristics. Due to increasing returns to local scale, landlords pay a 9% premium to acquire owner-occupied homes, increasing rental supply in suburbs where it is scarce and expensive. This expansion of rental supply lowers rents but raises home prices. To assess the distributional consequences, I develop a quantitative spatial equilibrium model with segmented housing markets. Converting ownership homes to rentals benefits down payment-constrained households by reducing barriers to high-amenity neighborhoods. However, the estimated non-pecuniary benefits of homeownership suggest that households who can marginally afford a home lose out.

Author

• Konhee Chang, Federal Reserve Board
  Presenting Author