Investors and Housing Affordability

Carlos Garriga, Pedro Gete and Athena Tsouderou

No 2020-047, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This paper studies the impact of a new class of investors on the dynamics of U.S. housing affordability after the Financial Crisis. Using a novel instrumental variable and processing 85 million housing transactions, we find that investors purchases increase the price-to-income ratio, especially in the bottom price-tier, the entry point for first-time buyers. Investors cause a short-run reduction in the vacancy rate of owner-occupied units and a medium-run positive response of construction. These equilibrium responses mitigate the effect on affordability. The effects on price-to-income and price-to-rent ratios depend on the housing supply elasticity. In highly elastic areas investors affect rents more than prices, whereas in areas that are highly inelastic investors have the opposite effect.

JEL-codes: E52 G11 R21 R31 R38 (search for similar items in EconPapers)
Pages: 65 pages
Date: 2020-07
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:103944

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DOI: 10.20955/wp.2020.047

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