Springer Nature is making Coronavirus research free. View research | View latest news | Sign up for updates

Why Are Small and Medium Multifamily Properties So Inexpensive?

  • 78 Accesses


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

This is a preview of subscription content, log in to check access.

Fig. 1
Fig. 2
Fig. 3
Fig. 4
Fig. 5
Fig. 6


  1. 1.

    Without controlling for these factors, a naïve test of our hypothesis would simply regress the price of each building i in its respective neighborhood j on the asset class in which it can be categorized,

    Priceij = α × AssetClassij + ϵij .

    The resulting coefficient α will be biased upwards if the effect of AssetClassij is correlated with the effects of the missing land and capital inputs.

  2. 2.

    See Table A1 in the online appendix for reasons of sample restriction by county.

  3. 3.

    Also, different uses are valued differently, making it difficult to compare across them within one regression (Geltner, Miller, Clayton, and Eichholtz 2006).

  4. 4.

    This unit breakdown follows the definitions designated by the Bureau of Census in decennial surveys of housing and the American Community Survey.

  5. 5.

    See, for example, Rosen (1974), Edmonds (1984), and McMillen and Redfearn (2010).

  6. 6.

    The eight counties include Los Angeles, Chicago, Miami, Las Vegas, Seattle, Cleveland, Atlanta, and Denver. We exclude Phoenix (Maricopa) and Pittsburgh (Allegheny) because there are no transactions of buildings with units greater than 4. We also exclude Minneapolis (Hennepin) since the sample size was too small for the buildings with 5 units or greater (n = 103).

  7. 7.

    The full table is available in the online appendix Table A7.


  1. Alonso, W. A. (1960). A theory of the urban land market. Papers and Proceedings of the Regional Science Association, 6(1), 149–157.

  2. An, B., Bostic, R. W., Jakabovics, A., Orlando, A.W., & Rodnyansky, S.. (2017). Understanding the Small and medium multifamily housing stock. Enterprise Community Partners Policy Brief. Retrieved from

  3. An, B., Orlando, A.W., & Rodnyansky, S.. (2019). The physical legacy of racism: How redlining cemented the modern built environment. Working Paper. Available at

  4. Anas, A., Arnott, R., & Small, K. A. (1998). Urban spatial structure. Journal of Economic Literature, 36(3), 1426–1464.

  5. Anderson, M. (2019). Here’s Oregon’s new bill to re-legalize ‘missing middle’ homes statewide. Sightline Institute. January 10. Retrieved from

  6. Bethell, A. (2018). 4 types of multifamily financing: Rates, terms & qualifications. June 25, 2018. Retrieved from

  7. Black, S. E. (1999). Do better schools matter? Parental valuation of elementary education. Quarterly Journal of Economics, 114(2), 577–599.

  8. Bloom, N., & Van Reenen, J. (2007). Measuring and explaining management practices across firms and countries. Quarterly Journal of Economics, 122(4), 1351–1408.

  9. Bloom, N., & Van Reenen, J. (2010). Why do Management practices differ across firms and countries? Journal of Economic Perspectives, 24(1), 203–224.

  10. Boustan, L. P. (2013). Local public goods and the demand for high-income municipalities. Journal of Urban Economics, 76(C), 71–82.

  11. Brueckner, J. K. (1987). The structure of urban Equilibria: A unified treatment of the Muth-Mills model. In E. S. Mills (Ed.), Handbook of regional and urban economics, volume II (pp. 821–845). Amsterdam: Elsevier Science Publishers.

  12. Brunnermeier, M. K., & Pedersen, L. H. (2008). Market liquidity and funding liquidity. Review of Financial Studies, 22(6), 2201–2238.

  13. Cameron, A. C., & Miller, D. L. (2015). A Practitioner’s guide to cluster-robust inference. Journal of Human Resources, 50(2), 317–372.

  14. Center, F., & Hopkins, J. (2013). Maintenance and Investment in Small Rental Properties: Findings from New York City and Baltimore.

  15. Cochrane, J. H. (2005). Asset pricing: Revised Edition. Princeton University Press.

  16. Combes, P. P., Duranton, G., & Gobillon, L. (2017). The production function for housing: Evidence from France. Working paper. Available at

  17. Coulson, N. E., & Fisher, L. M.. (2015). Houses, Apartments and Condos: The Governance of Multifamily Housing. Working Paper. Retrieved from

  18. Craw, M. (2017). Institutional analysis of neighborhood collective action. Public Administration Review, 77(5), 707–717.

  19. Dill, E. (2019, May 6). City program promotes ‘missing middle’ affordable housing. Minnesota Daily. Retrieved from

  20. Edmonds Jr., R. G. (1984). A theoretical basis for hedonic regression: A research primer. Real Estate Economics, 12(1), 72–85.

  21. Fox, J. (2018, June 5). The death of the small apartment building. Forbes. Retrieved from

  22. Garboden, P. M., & Newman, S. (2012). Is preserving small, low-end rental housing feasible? Housing Policy Debate, 22(4), 507–526.

  23. Geltner, D. M., Miller, N. G., Clayton, J., & Eichholtz, P. (2006). Commercial real estate analysis & investments (2nd ed.). Mason: Cengage Learning.

  24. Ghent, A. (2019). What’s wrong with Pittsburgh? Investor composition and trade frequency in US Cities. Working Paper. Available at

  25. Giuliano, G., Redfearn, C., Agarwal, A., & He, S. (2012). Network accessibility and employment centres. Urban Studies, 49(1), 77–95.

  26. Guasch, J. L., & Marshall, R. C. (1985). An analysis of vacancy patterns in the rental housing market. Journal of Urban Economics, 17(2), 208–229.

  27. Huang, J., & Wang, J. (2010). Market liquidity, asset prices, and welfare. Journal of Financial Economics, 95(1), 107–127.

  28. Mallach, A. (2007). Landlords at the margins: Exploring the dynamics of the one-to four-unit rental housing industry. Prepared for revisiting rental housing: A national policy summit, Harvard University, Joint Center for Housing Studies. Retrieved from

  29. McDonald, J. F., & McMillen, D. P. (1990). Employment subcenters and land values in a polycentric urban area: The case of Chicago. Environment and Planning A, 22(12), 1561–1574.

  30. McMillen, D. P., & Redfearn, C. L. (2010). Estimation and hypothesis testing for nonparametric hedonic house price function. Journal of Regional Science, 50(3), 712–733.

  31. Mervosh, S. (2018, December 13). Minneapolis, Tackling Housing Crisis and Inequity, Votes to End Single-Family Zoning. New York Times. Retrieved from

  32. Mills, E. S. (1967). An aggregate model of resource allocation in metropolitan area. American Economic Review, 57(2), 197–210.

  33. Muth, R. F. (1969). Cities and housing: The spatial pattern of urban residential land use. Chicago: The University of Chicago Press.

  34. Newman, S. J. (2005). Low-end rental housing: The forgotten story in Baltimore’s housing boom. Washington, DC: The Urban Institute Press.

  35. Pace, R. K., Barry, R., & Sirmans, C. F. (1998). Spatial statistics and real estate. Journal of Real Estate Finance and Economics, 17(1), 5–13.

  36. Pástor, Ľ., & Stambaugh, R. F. (2003). Liquidity risk and expected stock returns. Journal of Political Economy, 111(3), 642–685.

  37. Redfearn, C. L. (2007). The topography of metropolitan employment: Identifying centers of employment in a polycentric urban area. Journal of Urban Economics, 61(3), 519–541.

  38. Rosen, S. (1974). Hedonic prices and implicit markets: Product differentiation in pure competition. Journal of Political Economy, 82(1), 34–55.

  39. Rosenthal, S. S. (2008). Old homes, externalities, and poor neighborhoods: A model of urban decline and renewal. Journal of Urban Economics, 63(3), 816–840.

  40. Rosenthal, S. S. (2014). Are private markets and filtering a viable source of low-income housing? Estimates from a ‘repeat income’ model. American Economic Review, 104(2), 687–706.

  41. Saunders, P. (2016, April 30). Cities and the “missing (housing) middle.” Forbes. Retrieved from

  42. Shaver, K. (2017, December 9). Cities turn to ‘missing middle’ housing to keep older millennials from leaving. Washington Post. Retrieved from

  43. Shleifer, A., & Vishny, R. W. (1992). Liquidation values and debt capacity: A market equilibrium approach. Journal of Finance, 47(4), 1343–1366.

  44. Stegman, M. A. (1972). Housing Investment in the Inner City: The Dynamics of Decline; a Study of Baltimore, Maryland, 1968–1970. The MIT Press.

  45. Stegman, M. A. (1977). The neighborhood effects of filtering. Real Estate Economics, 5(2), 227–324.

  46. Willis, H. (2019, February 14). Downsizing the American Dream: The new trend toward ‘missing middle housing.’ Washington Post. Retrieved from

Download references


This research was funded in part by support from Enterprise Community Partners, and the University of Southern California’s Bedrosian Center on Governance and the Public Enterprise and Lusk Center for Real Estate.

Author information

Correspondence to Brian Y. An.

Additional information

Publisher’s Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Electronic Supplementary Material


(DOCX 38 kb)

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

An, B.Y., Bostic, R.W., Jakabovics, A. et al. Why Are Small and Medium Multifamily Properties So Inexpensive?. J Real Estate Finan Econ (2019).

Download citation

JEL Classification

  • R3
  • R31
  • R23


  • Small and medium multifamily
  • Affordable housing
  • Asset pricing
  • Asset-specific characteristics
  • Neighborhood effects
  • Local housing markets