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Why Are Small and Medium Multifamily Properties So Inexpensive?

Author

Listed:
  • 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)

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

Suggested Citation

  • Brian Y. An & Raphael W. Bostic & Andrew Jakabovics & Anthony W. Orlando & Seva Rodnyansky, 2021. "Why Are Small and Medium Multifamily Properties So Inexpensive?," The Journal of Real Estate Finance and Economics, Springer, vol. 62(3), pages 402-422, April.
  • Handle: RePEc:kap:jrefec:v:62:y:2021:i:3:d:10.1007_s11146-019-09729-5
    DOI: 10.1007/s11146-019-09729-5
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    More about this item

    Keywords

    Small and medium multifamily; Affordable housing; Asset pricing; Asset-specific characteristics; Neighborhood effects; Local housing markets;
    All these keywords.

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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