Making the Rent Up: How Landlords Price Rent During a Housing Development Boom

• In Event: Dilemmas of Development: Challenges to Achieving Affordability Among Housing Suppliers and Local Governments

Abstract

Urban economics documents a long-run relationship between housing market elasticity and rental affordability, but the short-term impacts of new development on nearby rental pricing are more widely debated. Some studies identify immediate effects of new development in reducing nearby rents, while others suggest that the effect of new development is heterogeneous depending on housing submarket quality, potentially increasing rents for low-end submarkets. In either case, however, multifamily landlords tend to be treated as largely homogenous and comparable actors whose pricing strategies, and related portfolio size and market consolidation, are otherwise similar. As a result, the sociological role of landlords in determining rental prices in the wake of development remains underspecified, resulting in poor understanding of the heterogeneous impacts of new development and which mechanisms drive shifts in rent.   
In this article, I theorize the social organization of rent setting and simultaneously consider how differences in market quality and landlord size mediate rental pricing in the wake of new construction. Combining property tax records, business filings, and rental market data over an eleven-year period in Austin, Texas, a city widely viewed as reducing housing costs through abundant housing construction, I show that only large landlords' rents were responsive to new development, and that large landlords lowered rents in high-end submarkets while raising rents in low-end housing after new market rate housing was built. Fixed-effects and event study models also show that larger gaps between new rents and existing rents among properties were associated with greater subsequent recent increases, and that effects were persistent for even relatively distant properties, suggesting that anchoring effects rather than amenity effects may be relevant for pricing decisions. I conclude by considering the implication of these findings for housing development booms, rent burdens, gentrification and displacement, and emergent spatial mismatch between the costs and benefits of housing supply.

Author

• Andrew Messamore, University of Washington
  Presenting Author