Financial Intermediaries as Suppliers of Housing Quality

Abstract

I document a recent surge in improvements to rental housing quality, and I show how financial intermediaries have contributed to this surge by reallocating financing to improvements from other types of real estate investment. Using exogenous variation generated by a 2015 change in regulatory capital requirements, I find that a reallocation of bank credit accounts for 44% of post-2015 improvements. The shock increases the supply of high-quality housing, which raises average rent but lowers high-quality rent, and it accounts for 31% of post-2015 rent growth. Finally, I show how a reallocation of private equity has also increased real improvement activity.

Keywords: Banks, Housing Quality, Rent, Financial Regulation, Private Equity

JEL Classification: G21, G23, G28, R30, R31