Why Are Small and Medium Multifamily Properties So Inexpensive?

Forthcoming, Journal of Real Estate Finance and Economics

49 Pages Posted: 16 Sep 2019

See all articles by Brian An

Brian An

University of Tennessee, Knoxville- Department of Political Science

Raphael W. Bostic

Federal Reserve Bank of Atlanta

Andrew Jakabovics

Enterprise Community Partners

Anthony W. Orlando

California State Polytechnic University, Pomona - Finance, Real Estate and Law Department

Seva Rodnyansky

Occidental College

Date Written: September 7, 2019

Abstract

Small and medium multifamily properties — defined as buildings having between 2 and 49 units — house over 20 percent of the U.S. population, yet they remain an understudied segment of the housing market. Using a rich, transaction-level dataset in eleven major urban counties, we find that they transact at a significant price discount relative to both single-family and large multifamily properties on a per square foot basis. Controlling for both unit- and building-level structural characteristics, small multifamily structures (with 2 to 4 units) transact at a 13.2 percent discount relative to single-family houses. Further analysis shows that neighborhood characteristics can explain 48.5 percent of this difference, leaving a sizable residual unexplained. We also find that medium-sized multifamily structures (5 to 49 units) are similarly discounted relative to larger multifamily buildings. This persistently remaining discount may result from asset-specific characteristics. On balance, the analysis reveals a U-shaped price gradient, with the greatest discount for the smallest multifamily properties (2 to 9 units) and a diminishing discount for greater building size.

Keywords: Small and medium multifamily, affordable housing, asset pricing, neighborhood effects, asset-specific characteristics, local housing markets

JEL Classification: R3, R31, R23

Suggested Citation

An, Brian and Bostic, Raphael W. and Jakabovics, Andrew and Orlando, Anthony W. and Rodnyansky, Seva, Why Are Small and Medium Multifamily Properties So Inexpensive? (September 7, 2019). Forthcoming, Journal of Real Estate Finance and Economics. Available at SSRN: https://ssrn.com/abstract=3449555

Brian An (Contact Author)

University of Tennessee, Knoxville- Department of Political Science ( email )

1115 Volunteer Blvd
1018 McClung Tower
Knoxville, TN 37996
United States
865-974-7041 (Phone)

HOME PAGE: http://www.brian-y-an.com

Raphael W. Bostic

Federal Reserve Bank of Atlanta

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

Andrew Jakabovics

Enterprise Community Partners ( email )

United States

Anthony W. Orlando

California State Polytechnic University, Pomona - Finance, Real Estate and Law Department ( email )

United States

Seva Rodnyansky

Occidental College ( email )

1882 Campus Road
90041, CA
United States

HOME PAGE: http://https://www.oxy.edu/academics/faculty/seva-rodnyansky

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