Renter Protection and Institutional Investment in Multifamily Rental Housing

Abstract

Investors may be hesitant to purchase multifamilty rental buildings in jurisdictions where legal protections of tenants are high. For example, landlords in protectionist states may experience restrictions such as the inability to collect large security deposits from tenants or face longer waiting periods before they may evict tenants for non-payment. We examine how state-level differences in renter protection laws impact building-level annual net operating income (NOI) for investment-grade multifamily rental properties in the US. After controlling for a variation in property and local demographic characteristics, we find that in high risk (high poverty, high rent to income ratio, etc.) census tracks higher renter protections are consistently and significantly associated with higher annual NOI but in low risk areas, the impact of better renter protection on annual NOI is largely insignificant. These results show, in some cases, that the ``happy tenants, happy landlords'' paradigm is indeed possible.

Keywords: Multifamily rental housing, institutional investors, net operating income, housing affordability