Why Are Small and Medium Multifamily Properties So Inexpensive?
Brian Y. An (),
Raphael W. Bostic (),
Andrew Jakabovics (),
Anthony W. Orlando () and
Seva Rodnyansky ()
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Brian Y. An: University of Tennessee
Raphael W. Bostic: Federal Reserve Bank of Atlanta
Andrew Jakabovics: Enterprise Community Partners
Anthony W. Orlando: California State Polytechnic University
Seva Rodnyansky: Occidental College
The Journal of Real Estate Finance and Economics, 2021, vol. 62, issue 3, No 4, 402-422
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: R3 R31 R23 (search for similar items in EconPapers)
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