The Housing Cost Consequences of Private-Equity Investment in Rental Markets

• In Event: 20425 - Landlords, Developers and Housing Affordability

Abstract

Following the 2008-09 financial crisis, institutional investors and private equity firms purchased newly inexpensive houses to convert to, or maintain as, rental properties. This trend was particularly acute in single-family housing markets in the Sun Belt. Scholars and policymakers have debated the scale and effects of this shift for housing costs and affordability. In this study, we draw on an improved measure of institutional ownership of properties at the neighborhood level across the full United States. We first describe the distribution of institutional ownership of single-family-residences from 2010-2019. Institutional penetration into rental markets is low on average nationally, but with economically consequential concentrations in some neighborhoods in some cities. We then use a policy shock instrument to estimate the effect of institutional ownership share on median rents and housing costs at the neighborhood level. Results indicate that a one percent increase in institutional ownership heightens median monthly rent by $68.83 and median monthly housing costs by $236.77. The larger relative effect on total housing costs suggests that institutional ownership contributes to housing unaffordability primarily by crowding out would-be homebuyers rather than by raising rental costs for tenants.

Authors

• Brenden Beck, Rutgers University Newark

• Adam Goldstein, Princeton University

• Florian M. Hollenbach

• Angela LaScala-Gruenewald, University of Massachusetts Amherst

• David Szakonyi, George Washington University