“Full House”: An Examination of Initial Public Offerings and Housing Market Outcomes in Proximity to Firm Headquarters

Abstract

An initial public offering (IPO) is often considered the pinnacle of wealth creation in the U.S. With each year, analysts rave over the latest multi-billion-dollar company and their stock listing on public exchanges for the first time. In 2018, Wall Street Journal and New York Times journalists gushed over the $9.2 billion IPO of Spotify – a digital music service provider. Just last year, headlines repeatedly featured the $82.4 billion IPO of ride-hailing giant Uber. However, this overwhelming enthusiasm relating to IPOs has allowed the externalities they produce to go unnoticed, particularly those in the housing market. This paper implements an event study methodology to estimate the effects of an IPO event on housing market outcomes. Among the principal findings are that IPOs cause statistically significant home price and rent growth in housing markets near firm headquarters. Furthermore, we find that price growth after the listing date results in tangible welfare losses for in-place renters. However, we find that these results are most apparent after the listing date rather than the unlock date, as stock prices may be unfavorable for insider selling after the unlock date. We propose multiple justifications for the significance of the relationship. First, post-IPO liquidity of firm insiders allows them to purchase real estate near firm headquarters, placing upward pressure on prices in the process. Second, post-IPO hiring draws entry-level workers to local housing markets, raising demand for rental units and driving up rents as well. Finally, in- place renters, who are already financially vulnerable, bear an outsized burden from growth in their monthly payments.