Finance and the Supply of Housing Quality

74 Pages Posted: 7 Sep 2019 Last revised: 7 Oct 2022

See all articles by Michael Reher

Michael Reher

University of California, San Diego (UCSD) - Rady School of Management

Date Written: September 15, 2020

Abstract

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

Suggested Citation

Reher, Michael, Finance and the Supply of Housing Quality (September 15, 2020). Journal of Financial Economics, Volume 142, Issue 1, October 2021, Pages 357-376, DOI: https://doi.org/10.1016/j.jfineco.2021.04.022, Available at SSRN: https://ssrn.com/abstract=3446411 or http://dx.doi.org/10.2139/ssrn.3446411

Michael Reher (Contact Author)

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

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