Financing Constraints and Maintenance Investments: Evidence from Apartments

Abstract

This paper studies the sensitivity of apartment maintenance investment to building financing frictions. Using a novel data set combining housing code violations from 45 US cities with apartment financing information, I show buildings with more mortgage debt incur more code violations. I then exploit a natural experiment effectively reducing financial resources for some New York City rent stabilized buildings. Following the shock, code violations increase for affected buildings relative to controls. This change in violations is concentrated among buildings with more mortgage debt. The results are consistent with financing constraints reducing maintenance investments, with consequences for renter quality of life.

Keywords: Corporate Finance, Commercial Real Estate, Housing Code Violations

JEL Classification: G3, G31, R30