Housing Policy with Home-Biased Landlords: Evidence from French Rental Markets

Abstract

Tax incentives are widely used to encourage the construction of rental dwellings, and reduce housing costs for low-income households. This paper examines an important source of local variation in the impact of these policies: the home-biased supply of capital from potential landlords. Building upon administrative data covering the universe of dwellings in France, I document that private investors own undiversified and lumpy amounts of rental housing, face substantial return frictions across projects and locations, and strongly prefer properties close to their own home. A spatial equilibrium framework combined with a frictional portfolio choice rationalizes these features. Because spatial frictions reduce the private return to more remote rental investments, mobile agents, who tend to be renters, agglomerate near the residence of affluent and immobile owners. The model also predicts that home bias in the supply of capital regulates the heterogeneity in housing market responses to place-based subsidies. Exploiting quasi-experimental evidence from a location-specific investment tax credit targeted at individual landlords in France, the Pinel law, I evidence its substantial causal impact on dwelling sales and new construction. In the medium-run, subsidies expand the local housing stock with limited crowding-out, inducing substantial in-migration of renters and population growth. Out-of-town individual investor involvement rises in treated cities, and the policy has stronger effects in locations more open to outside capital. The incomplete capitalization of the incentive in new unit prices confirms that under imperfect capital mobility, landlords bear part of the incidence of local subsidies in the form of higher net returns. Therefore, landlord home bias is a key factor in the allocation of capital and people across space, and determines the efficiency and distributional effects of place-based policies.