Samuel K Hughes

Research

Working Papers

Debt Rollover in Rental Housing

[Current Draft: Link; Earlier Draft of Job Market Paper: Paper; Online Appendix]

This paper studies how changes in landlords' mortgage financing costs affect rental housing. Using a novel dataset linking property-level asking rents, mortgages, and financial outcomes, I exploit quasi-exogenous variation in mortgage contract terms coming from the expiration of prepayment lock-out periods. I find that landlords significantly raise revenue by 3% at refinance, even where mortgage payments decline. Occupancy rates rise, then asking rents on new tenants rise. These effects are heterogeneous with respect to mortgage rate exposure and mark-to-market LTV. The results imply landlords adjust on multiple margins, suggestive of frictions or lumpy costs in pricing behavior and leasing.

No News is Bad News: Monitoring, Risk, and Stale Financial Performance in Commercial Real Estate, with Joseph Nichols

[FEDS Paper]

As financial intermediaries, banks have a key role in producing information and managing the risks on diverse loan portfolios. An important input into this process is ongoing collection of financial performance from borrowers. Using supervisory data on commercial real estate loans (CRE), this paper studies relationships between the content and timeliness of borrower-reported performance, internal bank risk ratings, and subsequent loan performance. Banks heavily rely on borrower reporting when setting risk ratings, despite the fact that borrowers with stale financials are more likely to default. Although banks can generally be slow to update their ratings as information becomes more stale on average, we find causal evidence that they do monitor more intensively in response to loan, location and portfolio risks.

Housing Demand & Affordability for Low-Wage Households: Evidence from Minimum Wage Changes

[Github; SSRN]

Rent-to-income ratios have risen over the past two decades with large increases at the bottom of the income distribution, prompting concern about a housing affordability crisis. This paper uses minimum wage changes as a natural experiment to study the relationship between housing demand & policies affecting low-wage households. If their housing demand is relatively inelastic, an increase in income will causally decrease rent-to-income ratios. The results suggest a 10% increase in minimum wages increases income for affected households by 1.9%, increases housing consumption by 0.5%, and decreases rent-to-income ratios by 1.4%. These estimates suggest that housing demand is fairly income inelastic, and preferences over housing demand are non-homothetic. In a modeling exercise, this paper suggests that homothetic models may not match housing demand behavior and may underestimate welfare gains to low-wage households.

Work in Progress

Mortgages and the Cash-flow Responsiveness of Landlords

[Earlier Draft of Job Market Paper: Paper; Online Appendix]

This paper shows that changes in apartment landlords' mortgage payments have real effects on their tenants. Cash-flow constrained landlords appear to raise occupancy rates and rental incomes in their buildings. In difference-in-difference regressions, I study a sharp increase in landlords' mortgage payments coming from the end of interest-only payment periods. Landlords significantly raise rental income by 3.5% as interest-only periods end. Effects are concentrated among the most cash-flow constrained landlords. These landlords cut asking rents on new tenants, increasing occupancy and potentially increasing rents on renewing tenants, suggesting that financing costs affect rental housing through multiple channels.

Segmentation and Returns on Rental Housing, with Benjamin Keys & Jessie Handbury

This paper studies how rental affordability and landlords' returns on apartment rental housing have changed across the quality distribution. Using a novel combination of property-level data on rents, operating costs, and transaction values, we establish three facts: (1) asking rents increased more at the lower end of the quality distribution since the Great Recession; (2) this outsized rent growth has not been accompanied by higher operating costs -- internal rates of return (IRR) also increased more in the lower quality segment; and (3) most new housing has been added in higher-quality segments. We show that these facts are related. The supply response to demand growth during the recovery has skewed towards high-end rental housing, mediating the response of rents and returns for existing high-quality housing. We use a CBSA-level Bartik instrument to show that lower-end rents and returns respond more to demand shocks and find that a third of this differential rent responsiveness is due to the differential responsiveness of new supply across segments.

Negative Leverage, Cap Rates, and the Cost of Debt in Apartments

Insuring Labor Market Risk for Renters Affects Financial Risk for Landlords, Investors, and Lenders

This paper presents evidence that unemployment insurance (UI) mitigates and family co-residence amplifies the effects of rising unemployment on household formation and rental housing markets. To study this topic, I use a proxy for the attractiveness of family co-residence: in areas where older adults in the 50-70 age cohort live in larger houses, more young adults live with family. In response to the same increase in unemployment, areas with more generous UI experience smaller rent declines, and smaller changes in co-residence. The effects are the opposite for areas with larger parents' homes. These heterogeneous effects of labor market shocks are present in multifamily mortgage default, implying that these sources of public and implicit private insurance for households have implications for wider risk in the financial system.

Costly Management of Apartment Buildings

This paper presents new facts about the structure and distribution of management fees paid to property managers for multifamily rental properties. Most property managers are paid a fixed share of annual property-specific revenue: I show the empirical distribution of management fees revealing that 30% of properties pay management fees bunched at 3%. Overall 80% of management fees are bunched at a round number share of revenue. Smaller, lower quality, lower rent, and higher maintenance cost buildings pay managers a higher share of revenue. Estimating these relationships is informative about the cost function of operating real estate, including quantifying economies of scale, and the marginal value of management effort.

The Effect of Expanding Colleges and Universities on Local Housing & Labor Markets

Other Work

Rising Property Insurance Costs and Pass-Through to Rents for Apartment Buildings with Raven Molloy

Link to FEDS Note

We find that, like homeowners' insurance, multifamily property insurance costs increased considerably from 2019 to 2024. The average monthly cost increased from $39 per unit in 2019 to $68 per unit in 2024 in real terms, an increase of more than 75 percent. Similar to Kim, Mahajan and Wang (2025), we find that a building's rental revenues tend to rise at the same time as its property insurance costs, suggesting that landlords may increase rent to partly offset these higher costs. By contrast, we find that there is little relationship between average changes in insurance costs and changes in asking rents. This lack of correlation suggests that the increase in revenue may stem from changes in the rents of existing tenants, which could be the case if existing tenants are less sensitive to price changes than new tenants. We find no evidence that landlords offset rising insurance costs by reducing other expenses. Putting the components of the operating statement together, we find that a dollar increase in property insurance costs reduces property owners' net income by about 72 cents. Therefore, this evidence suggests that rising property insurance costs tend to be borne more by property owners than by renters. Even so, our estimates suggest that rents paid by the average apartment tenant have risen by 7 to 12 dollars per month (less than one percent of average rent) due to the increase in property insurance costs since 2019.

Crypto Exposure and Household Financial Conditions, with Francisco E. Ilabaca, Jacob Lockwood, and Kevin Zhao

Link to OFR Brief

Are crypto asset gains leading to households taking on more leverage? This brief analyzes the potential for systemic financial risks arising from household balance sheet changes because of crypto exposure. The authors find that zip codes with the highest crypto exposure in 2021 saw the largest increase in mortgage and auto loan originations and outstanding balances over subsequent years. Even so, as of Q1 2024, the increased use of leverage among these groups has not resulted in higher delinquency rates (Brief no. 24-08).

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