American Sociological Review 84(1):142–70
- Background/Motivation: LLCs now own around 15% of rental properties in the country (US Census Bureau 2015). Landlord decisions about investment can trigger gentrification or decline (Aalbers 2006, Mele 2000, Smith 1979). Neglect can trigger disinvestment on neighbouring properties (Massey & Denton 1993), we extend this to vacancy. LLC protections from liability (Hamil 1998, Loewenstein 2012) may encourage moral hazard, risk-taking and influence landlord behaviour (Arrow 1963, Halpern, Trebilcock & Turnbill 1980, Roy 1997). Small-scale landlords may not have the capital to develop their properties (Garboden & Newman 2012). (could apply to some LLC owners as well). LLC ownership may facilitate riskier ownership strategies which rely on disinvestment (Desmond 2016, Mele 2000 (do they point to land rents as the reason?). This paper investigates whether the type of landlord (and especially LLC ownership) influences whether a property is allowed to fall into disrepair. “by transforming landlords from fully liable owners into partially liable, anonymous investors, the LLC may facilitate profit-seeking strategies that rely more on the extraction of rents than on the maintenance or improvement of the underlying property”.
- Nice table summarising differences in ownership
- Model/Data: Milwaukee Area Renters Survey (MARS) assesses housing conditions. MPROP contains ownership and information about properties. NSS contains data on housing code violations (for building disrepair). Controls for property size and type, building age, assessed value (don’t understand the explanation for this), ownership transfer period fixed-effects, landlord characteristics (residence outside WI, owner scale), neighbourhood characteristics (household poverty levels, racial composition, housing tenure from Census and ACS), spatially laged nearby disrepair.
- Empirics/Key Threats/Challenges: LPM with controls for ownership type, property, owner & neighbourhood covariates, year- and property-specific fixed effects (using a panel dataset). Clusters errors at zipcode. Need to account for selection (LLCs might be more likely to buy neglected properties) vs an owner effect (LLCs treating their properties differently). A positive association could indicate either. Interrupted time series essentially compares the rate of disinvestment before and after a property transitions to LLC ownership.
- Results: LLCs don’t reside out of WI at higher rates than sole proprietorships (SP), but are more valuable and more likely to have undergone a foreclosure. Properties are more likely to have code violations if: LLC-owned, abesentee owner, older building, lower assessed value, multifamily, and are in neighbourhoods which are more poor, black, and have more nearby disrepair. Finds that when rental properties change hands into an LLC, they experience more rapid deterioration.