Institutional Investment, Asset Illiquidity and Post‐Crash Housing Market Dynamics

37 Pages Posted: 18 Sep 2020

See all articles by Patrick S. Smith

Patrick S. Smith

San Diego State University

Crocker Herbert Liu

Cornell University - School of Hotel Administration

Date Written: Autumn (Fall) 2020

Abstract

We examine institutional investors’ entry into the equity side of the single‐family detached housing market using an asset illiquidity framework. We find that institutional investors purchased owner‐occupied houses after the real estate crisis for approximately 6.3–11.8% less than owner‐occupiers. The large discount was in addition to distressed sale and cash purchase discounts which, when combined, highlight the low liquidation value for owner‐occupied housing. The results suggest that asset illiquidity is an important cost of leverage in the owner‐occupied housing market.

Suggested Citation

Smith, Patrick S. and Liu, Crocker Herbert, Institutional Investment, Asset Illiquidity and Post‐Crash Housing Market Dynamics (Autumn (Fall) 2020). Real Estate Economics, Vol. 48, Issue 3, pp. 673-709, 2020, Available at SSRN: https://ssrn.com/abstract=3694522 or http://dx.doi.org/10.1111/1540-6229.12231

Patrick S. Smith (Contact Author)

San Diego State University ( email )

5500 Campanile Drive
San Diego, CA 92182-8236
United States

Crocker Herbert Liu

Cornell University - School of Hotel Administration ( email )

435B Statler Hall
Ithaca, NY 14853-6902
United States

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