Report

Effects of Financing Constraints on Maintenance Investments in Rent-Stabilized Apartments

Abstract: This paper studies whether financing constraints adversely affect renters by reducing maintenance. Consistent with a sensitivity of maintenance to financial resources, housing code violations increased after a change in the law that effectively decreased cash flows available to maintain some rent stabilized buildings in New York City. The effect is most severe when financing constraints are present. Moreover, results of panel regressions using a dataset of 45 cities obtained with Freedom of Information Act (FOIA) requests are consistent with a hypothesis that buildings with higher LTV ratio mortgages have more code violations. Together, the results provide evidence that financing constraints reduce maintenance, an outcome that exacerbates the unintended consequences of rent control.

Keywords: corporate finance; commercial real estate; housing code violations;

JEL Classification: G3; G31; R30;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2021-12-01

Number: 1000

Note: Previous titles: “The Effects of Leverage on Investments in Maintenance: Evidence from Apartments," "Financing Constraints and Maintenance Investments: Evidence from Apartments”

Note: Revised December 2022, February 2023, August 2024.