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

Patrick S. Smith and Crocker H. Liu

Real Estate Economics, 2020, vol. 48, issue 3, 673-709

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.

Date: 2020
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https://doi.org/10.1111/1540-6229.12231

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Real Estate Economics is currently edited by Crocker Liu, N. Edward Coulson and Walter Torous

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