We show that profit‐seeking institutional investors provide valuable liquidity and spur the recovery of distressed housing markets. Using a quasi‐natural experiment wherein investors purchased prepackaged distressed home portfolios from government‐sponsored enterprises, we find that transaction prices of properties located within 0.25 miles of bulk‐sale properties increased by 1.4% more than homes located farther away. This positive price spillover effect helped reverse the discounts at which such properties were being sold prior to the bulk‐sale event. The price spillover effect due to the bulk‐sale event is greater for foreclosed homes (4.1%), homes similar to the bulk‐sale homes (2.5%), and homes in highly distressed neighborhoods (7.0%). Our results highlight asset disposition through pooling and institutional participation as a potential market‐driven channel for the recovery of distressed housing markets.

We examine the recent rise of institutional investment in the single-family home rental market and its implications for renters’ welfare. Using institutional mergers to identify local exogenous variation in institutional landlords’ scale and market share, we show that rents increase in neighborhoods where both merging firms owned properties (i.e., overlapped neighborhoods) relative to other nonoverlapped neighborhoods. Meanwhile, the crime rate also significantly decreases in overlapped neighborhoods after mergers. Our findings suggest that while institutional landlords leverage their market power to extract greater surplus from renters, they also improve the quality of rental services by enhancing neighborhood safety.

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