Investors and the Geography of the Subprime Housing Crisis

Abstract

In this article we investigate the connections between home purchases by individual investors and urban space by exploring the spatial dimension of investor lending in Chicago and Cook County, Illinois, during the first decade of the 2000s. Previous research on investors (nonoccupant homebuyers) links them to foreclosures and the wave of real-estate owned purchases following the crisis, but leaves relatively unexamined their connection to subprime lending and the housing bubble, particularly the way that the crisis occurred unevenly in cities. We find that investor lending in Chicago increased during the housing boom and that subprime mortgages played a sizable role in overall levels of investor lending. We also show that there were geographically distinct submarkets for prime and subprime investor loans, with subprime investor loans significantly clustered in low-income, majority Black neighborhoods. Our analysis reveals that racial segmentation in the housing market and different types of credit helped produce an uneven geography of investor lending in the years before the housing crisis.