Researchers pull landlords from the shadows

Approximately one-third of all households in the United States live in rented properties, but it can be hard to say who the landlords are. 

Identifying deed-holders may not seem challenging. “The normal easy way to look up who owns a rental unit is to look in the property assessor’s office,” said economics professor Rebecca Diamond M.A. ’11, Ph.D. ’13. Because the owner pays taxes on that property, the assessor’s office has information on whom to bill and where to send it. 

However, that simple process is complicated by owners masking their identities through the creation of LLCs and small corporations. These apparently small owners are the ones who are billed when, in reality, they may be part of larger holdings. 

“You might know who your true landlord is because you talked to him or her,” noted Diamond, the inaugural Martin Feldstein Professor of Economics. “But if you’re doing research at scale, knowing who the real landlords of properties are is often very hard to figure out.” 

In a new research paper, Diamond and her co-authors introduce a method for identifying landlords on a grand scale. With U.S. rental units pulling in more than $700 billion annually, their approach may hold implications for housing and economic policy — possibly other areas, too. 

Landlords obscure their identities for a variety of reasons, Diamond explained, including liability. A small LLC can be sued if someone is injured at a property, for example, but the larger corporation that in reality owns the LLC may be shielded. 

This kind of camouflage makes it difficult to understand the distribution of property networks across different types of landlords, Diamond said. It also raises questions about monopolies and income inequality, including how competitive a particular rental market is and how rents are being set. 

Take, for example, a property that appears to be owned by an individual or an LLC with that property’s name. This may look like a simple case of someone renting out a house they once lived in, or perhaps merely a space within that house. However, the truth can be much more complicated. 

“You might think because a person owns it in their name and owns a single-family home,” that person is an individual landlord, Diamond said. “But do they actually own 50 single-family homes? Are they all in the same city? Are they across the United States? It’s hard to know without good data to actually characterize the extent of ownership.” 

To create the current report, which also constitutes a chapter in an NBER handbook on the housing sector, Diamond and her co-authors used U.S. Census Bureau data and anonymized tax information, including corporate IRS K-1 filings (used to report amounts received from LLCs and other pass-through entities). 

The researchers got to the bottom of rental property ownership in 11 U.S. cities: Atlanta, Charlotte, Chicago, Denver, Hartford, Houston, Jacksonville, Los Angeles, Phoenix, Seattle, and Washington, D.C. 

Already, their methodology has surfaced striking disparities. “In Chicago there’s more individual owners, whereas in Houston we see a bigger business presence,” Diamond said. 

The researchers are also uncovering just how lucrative owning rental properties can be. “For the mom-and-pop landlords, who own their properties straight in their name, their mean household income is, like, $481,000,” Diamond said. “That’s a lot of money.” 

Diamond plans to use the new approach to explore other aspects of rental housing going forward. That includes understanding how many landlords are truly individuals, and how many are actually larger corporations that own multiple properties under different names. She is also looking at how rents are set and how important a landlord’s identity is to tenants’ economic lives, the income disparity between renters and landlords, and just how small landlords differ from big ones. 

“To do that,” she said, “we have to first just figure out who the landlords are.”