Financial Intermediaries as Suppliers of Housing Quality

Abstract

I document a recent surge in improvements to rental housing quality (i.e. renovations), and I show how financial intermediaries have contributed to this surge by reallocating financing to improvements and away from other types of real estate investment, such as construction. Using exogenous variation generated by a 2015 change in regulatory capital requirements, I find that a reallocation of bank credit accounts for 44% of improvements since 2015. The shock increases the supply of high-quality housing and lowers its relative rent, but it raises average rent and accounts for 31% of post-2015 rent growth. Finally, a reallocation of private equity by public pensions has also contributed to the surge in improvements to rental housing quality.

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

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