The Effects of Leverage on Investments in Maintenance: Evidence from Apartments

73 Pages Posted: 17 Feb 2021 Last revised: 12 Mar 2021

See all articles by Lee Seltzer

Lee Seltzer

University of Texas at Austin - Department of Finance

Date Written: December 30, 2020

Abstract

This paper studies the sensitivity of investment in apartment building maintenance to building debt levels. I use a novel data set combining housing code violations from 45 US cities with apartment financing information to show that highly leveraged buildings tend to incur more code violations. I then exploit a natural experiment that effectively increased building leverage for some New York City rent stabilized buildings, but not others. Following the shock, violations increased for affected buildings relative to unaffected buildings. This change in violations was concentrated among more highly leveraged buildings. The results are consistent with a theory that debt reduces investment in maintenance.

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

JEL Classification: G3, G31, R30

Suggested Citation

Seltzer, Lee, The Effects of Leverage on Investments in Maintenance: Evidence from Apartments (December 30, 2020). Available at SSRN: https://ssrn.com/abstract=3744217 or http://dx.doi.org/10.2139/ssrn.3744217

Lee Seltzer (Contact Author)

University of Texas at Austin - Department of Finance ( email )

TX
United States

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