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Investors and Housing Affordability

Author

Listed:
  • Carlos Garriga
  • Pedro Gete
  • Athena Tsouderou

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.

Suggested Citation

  • Carlos Garriga & Pedro Gete & Athena Tsouderou, 2020. "Investors and Housing Affordability," Working Papers 2020-047, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:103944
    DOI: 10.20955/wp.2020.047
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    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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