The Effect of Sustainability Features on Mortgage Default Prediction and Risk in Multifamily Rental Housing

Abstract

This study examines the relationship between a certain set of sustainability features and default risk in multifamily housing. The sustainability features studied affect both social and environmental concerns including affordability, walkability, auto dependence, exposure to pollution, and proximity to protected open space. All the features studied, except housing affordability, are a function of property location. Various physical and operational characteristics of buildings, such as energy and water efficiency, which are also important to sustainability, could not be studied due to data limitations. The results show that the sustainability features studied here may be used to improve the prediction of mortgage default. The results also show that the sustainability features reduce default risk in multifamily rental properties. Properties in less auto‐dependent residential locations, for example, where 30.0% or more of the workers living in the area commute to work by subway or elevated train, were 58.0% less likely to default, compared to other locations, all else being equal. Similarly significant findings are reported for all the sustainability features examined in the study.