[Draft coming soon]
Abstract: A large and growing share of households rent from private landlords. I empirically analyze how landlords affect welfare and housing affordability by influencing rents, prices, and the allocation of houses between the rental and owner-occupied sectors in the presence of household borrowing constraints. I begin by documenting three key facts that point to the impact of landlords on the housing market: (i) housing quality is segmented between the rental and owner-occupied sectors, with rentals generally offering lower quality, (ii) cities with more pronounced quality segmentation tend to have higher rent-to-price ratios, and (iii) in more segmented cities landlords have lower assets. To quantify the effect of landlords on the housing market, I develop and estimate a two-sided assignment model which features households' optimal choice of housing quality and tenure (i.e., the choice to rent or own) in the presence of borrowing constraints, landlords' profit-maximizing choice of quality to rent out, and endogenous quality segmentation and rent-to-price ratios which are determined in equilibrium. Based on counterfactual experiments I show that landlord heterogeneity matters. Differences in landlord costs of capital explain much of the variation in quality segmentation and rent-to-price ratios observed across cities. This in turn affects the distribution of welfare between renters and owner-occupiers. Furthermore, differences in landlord costs moderate the equilibrium impact of taxes on rental income.