Abstract

What role do household, 'mom-and-pop' real estate investors play in determining housing prices? These small, undiversified, and highly home-biased investors collectively own a dominant share of rental housing. I develop a model in which risk-averse residents endogenously become landlords, supplying capital in a local market for rental units. Rent-price ratios and returns adjust to clear this market and depend on investor characteristics. To test the model, I construct a novel dataset on rent-price ratios, returns, and investor wealth. Using two shift-share instruments based on local ancestry and metro equity exposure, I show that increases in local wealth and investor participation rates lower rent-price ratios and future returns. These mechanisms help explain spatial variation in prices, returns, and wealth accumulation, with implications for homeownership costs and housing supply.