Market Power and the Welfare Effects of Institutional Landlords
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Empirical Micro Lunch
PCPSE 510 - NEW TIME & PLACE
United States
Abstract: In the last decade, large financial institutions in the United States have purchased hundreds of thousands of homes and converted them to rentals. This paper studies the welfare consequences of institutional ownership of single-family housing. We build an equilibrium model of the housing market with two sectors: rental and homeownership. The model captures two key forces from institutional purchases of homes: changes in rental concentration and reallocation of housing stock across sectors. To estimate the model, we construct a novel dataset of individual homes in metropolitan Atlanta, identifying institutional owners of each house and scraping house-level daily prices, rents, vacancies, web page views, and customer contacts from Zillow. We find that institutional acquisitions increase average renter welfare by $2,760 per year (with rents decreasing by 2.3%). This net benefit reflects two opposing effects: higher concentration raises rents by 3.8%, but higher rental supply lowers rents by 6.1%. On the other hand, the welfare of the average homebuyer decreases by $49,950. On the supply side, institutional acquisitions benefit house sellers but harm the average landlord.
Joint with Gregory Dobbels
