Financial Intermediaries as Suppliers of Housing Quality

A surge in residential improvements has amplified post-Recession rent growth, and financial intermediaries have contributed to this effect by reallocating financing to improvement projects from other types of residential investment. This paper examines two shifts in the supply of financing which together explain around one-third of real improvement activity over 2010-16. The first shift is due to a change in regulatory bank capital requirements, and it reallocates bank credit to improvements from construction projects. The second shift is due to a change in underfunded public pensions' risk-taking incentives, and it reallocates private equity financing to improvements from buy-and-hold projects.