Why Are Small and Medium Multifamily Properties So Inexpensive?


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

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  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.


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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.

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Correspondence to Brian Y. An.

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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). https://doi.org/10.1007/s11146-019-09729-5

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JEL Classification

  • R3
  • R31
  • R23


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