Investors and Housing Affordability
69 Pages Posted: 7 May 2020 Last revised: 14 Jun 2021
Date Written: June 11, 2021
We study institutional investors in U.S. housing markets after the Great Recession. First, we document their characteristics. Most of them are local, buying houses within the MSA of their mail address. Moreover, most of them are small and located throughout the U.S. Instead, large investors are geographically concentrated in "superstar cities". In both the extensive (number of investors) and intensive (dollar purchases) margins the small investors grew the most. Then, we analyze how they affect affordability. Their purchases increase the price-to-income ratio, especially in the bottom price-tier, the entry point for first-time buyers. Institutional investors cause a short-run reduction in vacancy rates and a medium-run positive response of construction, which is stronger for multi-unit buildings. The supply response mitigates the effect on affordability, although not enough to reverse the effect. In highly elastic areas investors affect rents more than prices, whereas in highly inelastic areas investors have the opposite effect.
Keywords: Institutional investors, housing affordability, house prices, supply elasticity, propensity to invest.
JEL Classification: E52, G11, R21, R31, R38
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