Buy-to-Rent Investors and the Market for Single Family Homes

Abstract

We examine the impact of house purchases by large buy-to-rent investors on local real estate markets. First, we present micro-level evidence of positive externalities from institutional entry. We show that returns on repeat sales of properties near purchases by buy-to-rent investors are significantly greater if the repeat sale concluded after the buy-to-rent purchase rather than before. Secondly, we highlight the potential channel underlying such an externality as a supply side effect. Specifically, we show that properties outside the price range normally paid by buy-to-rent investors experienced smaller gains after nearby buy-to-rent purchases. Thus, buy-to-rent investors appear to increase the value of properties in an area by reducing the local supply. Lastly, we document mortgage market effects due to institutional purchases and related supply effects. We show that mortgage use increased after the buy-to-rent purchases of nearby properties and that the increase arises from existing lenders that operate in the market rather than new lenders entering the market.

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Notes

  1. 1.

    Information is incomplete for some Georgia counties before the financial crisis. Hence, we do not include Georgia in Figures 1 and 2.

  2. 2.

    The algorithm matches based on the “spelling distance” between the institution name and buyer name specified in the deed transactions. The matching algorithm is not perfect and does a better job for full names rather than acronyms.

  3. 3.

    These regressions are run using Stata. In Stata, when fixed effects are used, the intercept is the average fixed effect.

  4. 4.

    Georgia is omitted because lender identities are seldom included in the mortgage data.

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Acknowledgements

We are grateful to Hank Bessembinder, Francois Cocquemas, Shane Corwin, Yuliya Demyanyk, David Echeverry, Paul Gao, David Hutchison, Alberto Rossi, Sophie Shive, Lin Sun and seminar participants at Arizona State University, Florida International University, Florida State University, University of Illinois-Chicago and the University of Notre Dame for comments. The authors declare that they have no conflict of interest. Data provided by Zillow through the Zillow Transaction and Assessment Dataset (ZTRAX). More information on accessing the data can be found at http://www.zillow.com/ztrax. The results and opinions are those of the authors and do not reflect the position of Zillow Group.

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Correspondence to Walter D’Lima.

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D’Lima, W., Schultz, P. Buy-to-Rent Investors and the Market for Single Family Homes. J Real Estate Finan Econ (2020). https://doi.org/10.1007/s11146-020-09790-5

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Keywords

  • Institutional investor
  • Residential market
  • Housing supply
  • Mortgage market externalities

JEL Classification

  • R0
  • R3