Academic Evidence on the Causal Impact of Institutional Landlords on House Prices and Rents
A major challenge in the debate over institutional single-family rental (SFR) ownership has been establishing a causal link between corporate buyers and housing costs. Because large-scale investors naturally target high-growth, economically healthy neighborhoods, simple correlations between institutional presence and rising home prices are severely biased by endogeneity (simultaneity and reverse causality).
A landmark peer-reviewed study by Caitlin S. Gorback (UT Austin), Franklin Qian (UNC Chapel Hill), and Zipei Zhu (UNC Kenan-Flagler), titled "The Impact of Institutional Owners on Housing Markets" (2024), overcomes these hurdles. Using an innovative instrumental variable (IV) design, the authors establish a clear, causal, and statistically significant upward pressure exerted by Long-Term Rental (LTR) companies on both house prices and rents.
The Methodology: A Novel Shift-Share Instrument
To isolate exogenous variation in LTR entry, the authors construct a shift-share (Bartik) instrument:
- Cross-Sectional "Share" (Suitability Index): The authors analyze the pre-existing built environment in 1990 (two decades before the rise of LTRs). They use machine learning (LASSO) to isolate property characteristics that LTRs differentially prefer relative to small landlords (SLLs). The data shows that LTRs strongly prefer mid-sized, 3-bedroom, relatively newer single-family homes in neighborhoods with low vacancies, low poverty, and high minority shares. This 1990 mix forms a "Suitability Index" that is slow-moving and completely uncorrelated with pre-period house price growth (2000–2009 placebo test).
- Temporal "Shift" (Property Management Software VC Funding): The authors track the cumulative venture capital (VC) funding flowing into Online Property Management (OPM) software (e.g., RealPage, Yardi, RentManager). The rise of OPM software represents a national technological shock that dramatically lowered the cost of managing geographically decentralized single-family rental portfolios.
- The Interaction: By interacting the 1990 local Suitability Index with the national OPM funding shock (using a leave-one-out county business patterns method), the authors create a highly predictive instrument for annual LTR entry.
Causal Findings on House Prices and Rents
Using this instrument in a changes-on-changes specification from 2010 to 2022, the authors find:
- House Prices: A one-standard-deviation above the mean increase in LTR share growth leads to an annual additional house price growth of 2.11 percentage points (pp).
- When restricting the sample to the intensive margin (only census tracts with active LTR presence), a one-standard-deviation increase in LTR share growth causes a 1.64pp increase in annual house price growth.
- This translates to an elasticity where a 1 percentage point (1pp) increase in LTR share causes an 8.16% increase in house prices (1.64pp divided by the standard deviation of 0.201).
- Rents: Relying on the Zillow Observed Rent Index (ZORI) from 2015 to 2022, the authors find that a one-standard-deviation above the mean increase in LTR share growth causes an annual additional rent growth of 2.19pp.
- In the intensive margin sample, a one-standard-deviation increase in LTR share growth causes a 1.64pp increase in annual rent growth.
- This translates to an elasticity where a 1pp increase in LTR share causes a 5.47% increase in rents (1.642pp divided by the standard deviation of 0.300).
The Underlying Reallocation Mechanisms
The authors identify two key reallocation mechanisms that drive these price and rent increases, shifting the market structure:
- Landlord Professionalization (Small to Large Landlords): Small landlords sell properties to LTRs. These larger, institutional landlords adopt property management platforms and algorithmic, responsive pricing (such as RealPage). This dynamic repricing allows them to extract higher rents from tenants, boosting the property's Net Operating Income (NOI), which in turn bids up the underlying asset value (house price).
- Tenure Reallocation (Owner-Occupants to Investors): LTRs purchase homes from owner-occupants, shifting them into the rental pool. Crucially, once LTRs acquire homes, they tend to trade amongst themselves rather than sell back to owner-occupants. In high-concentration tracts, 83% of LTR sales are to other LTRs. This permanently narrows the single-family stock available for owner-occupation, shrinking inventory and driving up purchase prices as owner-occupants compete over fewer homes.
While turning owner-occupied homes into rentals expands the rental supply (which theoretically puts downward pressure on rents), the professionalization and algorithmic pricing effects dominate, resulting in net rental rate increases in neighborhoods targeted by institutional buyers.