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Institutional Investment and Residential Rental Market Dynamics

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  • McCarthy, Barra

    (Central Bank of Ireland)

Abstract

The impact of institutional investment on residential rental markets is a topic that draws much attention, but for which limited evidence exists. This paper aims to remedy this by analysing the direct and indirect impact of institutional investment in existing housing stock on residential rents at the property level, using Ireland as a case study. Ireland is particularly suited, as large portfolios of rental properties became available for purchase due to the Global Financial Crisis (GFC), enticing institutional investors into Ireland's rental market for the first time. By focusing on investment in existing stock, the analysis isolates the impact of institutional investment from the effect it can have on local rental markets when it is channelled to new rental housing – a supply effect which should reduce rents. The study finds that institutional investors increased the level of rents by 4.1 percentage points more than other landlords with comparable properties following purchase. Available evidence supports many different causal mechanisms, including bargaining power, institutional landlords providing a higher cost-higher quality service, and institutional landlords placing greater emphasis on profitability.

Suggested Citation

  • McCarthy, Barra, 2024. "Institutional Investment and Residential Rental Market Dynamics," Research Technical Papers 1/RT/24, Central Bank of Ireland.
    • Handle: RePEc:cbi:wpaper:1/rt/24
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    File URL: https://www.centralbank.ie/docs/default-source/publications/research-technical-papers/institutional-investment-and-residential-rental-market-dynamics.pdf?sfvrsn=4796621a_5
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    References listed on IDEAS

    as
    1. Gallin, Joshua & Verbrugge, Randal J., 2019. "A theory of sticky rents: Search and bargaining with incomplete information," Journal of Economic Theory, Elsevier, vol. 183(C), pages 478-519.
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    More about this item

    Keywords

    Institutional Investment; Residential Rental Markets; Spatial Data.;
    All these keywords.

    JEL classification:

    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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