Finance and the Supply of Housing Quality
74 Pages Posted: 7 Sep 2019 Last revised: 7 Oct 2022
Date Written: September 15, 2020
I show how financial intermediaries affect rental housing quality and affordability by supplying real estate investors with financing for quality improvement projects (i.e., renovations). First, I document a historic surge in improvement activity since the Great Recession. Then, using exogenous variation generated by a 2015 change in regulatory capital requirements, I find that a reallocation of bank credit toward improvement projects accounts for 24% of quality improvements since 2015. The shock increases the supply of high-quality apartments and lowers their rent. However, it raises the average apartment's rent and accounts for 32% of historically high rent growth over 2015-16.
Keywords: Banks, Housing Quality, Rent, Financial Regulation
JEL Classification: G21, G23, G28, R30
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