Cracking the Home Ownership Question
The Road to Housing bill limits institutional single-family holdings. But just how much do they hold?
Measuring the extent of institutional ownership of rental properties has been central to the debate over the recent bipartisan housing legislation that’s waiting to be signed. But the actual number has also proved elusive, with figures varying widely.
Now, though, a group of researchers has developed a method that traces ownership through administrative records to identify the actual onership and construct property portfolios across the full landlord spectrum.
Ownerhip is often obscured by intermediary entities such as LLCs and partnerships that separate legal from economic controls. But the six researchers combine deeds and property assessments with Census Bureau data as well as tax and SEC filings to construct their model.
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And applying it to 11 larger CBSAs, they find that—no surprise—individual landlords own a majority of all rental units. However, their shares vary “meaningfully” across markets.
Still, they write in a working paper published by the National Bureauof Economic Research, their method is designed “to scale to national coverage and to support measurement of landlord identity, portfolio composition and ownership concentration in U.S. rental markets.”
“We aim to fill the gap by providing a framework for constructing landlord portfolios at the national level, covering both individual and institutional landlords across the building size distribution, and using entity resolution methods that do not rely solely on mailing address matching” they write. “Although the data used to illustrate our methods does not yet offer national coverage, our approach can be scaled to achieve such coverage over time.”
Why it matters
Measuring who owns rental housing matters for a range of questions in housing economics and policy. Researchers have long sought to understand how landlord characteristics affect rent setting and housing prices—questions at the heart of understanding market power, competition and the spatial structure of urban housing markets.
Also, related work has examined how changes in institutional ownership affect neighborhood composition and homeownership rates as well as how ownership concentration affects tenant and neighborhood-level outcomes such as eviction rates, demographic composition and housing quality.
These same issues motivate policy design, including whether different types of landlords respond differentially to rent regulation, how tax policy might account for portfolio size and how exposed landlords are to financial and macroeconomic shocks.
However, existing approaches to measuring rental property ownership have “important limitations,” the researchers say, noting that while some jurisdictions have high-quality local data that permit high-quality measurement, data is available only for a handful of places and cannot capture portfolios that span jurisdictions
Moreover, surveys like the Residential Housing Finance Survey can be nationally representative, but ”they have small sample sizes, are subject to response error—especially since the respondent may be a property manager rather than the beneficial owner—and do not describe an owner’s full portfolio.”
READ ALSO: The 21st Century ROAD to Housing Act Passed the House. What’s Next?
The authors admit their approach has several shortcomings, but identifying ownership at the local level, they write, “allows landlord portfolios to be measured consistently across ownership forms and enables classifying owners into economically meaningful categories, including unincorporated individuals, incorporated individuals, individual trusts, business entities and public owners.”
In applying their system for counting, they found that individual landlords—so-called mom and pop owners—hold the majority of rental units. Some 61 percent of rental units. are owned by unincorporated individuals and an additional 7.6 percent by incorporated individuals. The total—nearly 69 percent— is somewhat less than what it frequently quoted.
They also discovered that rental ownership is widely dispersed. Among the 6.1 million units in their sample, they identifed more than 558,000 unique individual and business landlords corresponding to these units. And they document that the share of unincorporated individual owners varies meaningfully across markets, ranging from roughly 50 percent in Houston to nearly 70 percent in Chicago.
The report highlights several other findings:
- Individual landlords who hold property through corporate entities are substantially wealthier than those who own directly, with higher AGI, higher wage income, and a greaterlikelihood of filing Schedule E.
- Ownership composition varies meaningfully across building types and metropolitan areas, with incorporated individuals more prevalent in larger multifamily structures.
- The mailing address approach to measuring ownership, while widely used, can both understate and overstate portfolio sizes: Assessments mailed to the property address cause portfolios to be undercounted, while shared mailing addresses from intermediaries such as property managers and law firms cause unrelated owners to be grouped together.
