Why Are Small and Medium Multifamily Properties So Inexpensive?

Brian Y. An (), Raphael W. Bostic (), Andrew Jakabovics (), Anthony Orlando and Seva Rodnyansky ()
Additional contact information
Brian Y. An: University of Tennessee
Raphael W. Bostic: Federal Reserve Bank of Atlanta
Andrew Jakabovics: Enterprise Community Partners
Seva Rodnyansky: Occidental College

The Journal of Real Estate Finance and Economics, 2021, vol. 62, issue 3, No 4, 402-422

Abstract: Abstract Small and medium multifamily properties—defined as buildings having between 2 and 49 units—house over 20% of the U.S. population, yet they remain an understudied segment of the housing market. Using a rich, transaction-level dataset in eleven major urban counties, we find that they transact at a significant price discount relative to both single-family and large multifamily properties on a per square foot basis. Controlling for both unit- and building-level structural characteristics, small multifamily structures (with 2 to 4 units) transact at a 13.2% discount relative to single-family houses. Further analysis shows that neighborhood characteristics can explain 48.5% of this difference, leaving a sizable residual unexplained. We also find that medium-sized multifamily structures (5 to 49 units) are similarly discounted relative to larger multifamily buildings. This persistently remaining discount may result from asset-specific characteristics. On balance, the analysis reveals a U-shaped price gradient, with the greatest discount for the smallest multifamily properties (2 to 9 units) and a diminishing discount for greater building size

Keywords: Small and medium multifamily; Affordable housing; Asset pricing; Asset-specific characteristics; Neighborhood effects; Local housing markets (search for similar items in EconPapers)
JEL-codes: R23 R3 R31 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s11146-019-09729-5

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