Connecting state and local government leaders
Institutional investors purchased nearly 20% of all U.S. homes for sale in the last three months of 2021, turning most into rentals. Now, some state and local officials want to slow the trend, worried it is boxing residents out of homeownership.
As real estate investors scoop up bulk quantities of single-family homes in the Sun Belt and elsewhere, some state and local officials are trying to make it more difficult to convert that property into rentals.
In the fourth quarter of 2021, institutional investors spent approximately $50 billion to buy more than 80,000 homes—18.4% of all homes purchased in the U.S. and nearly 75% of them single-family homes, according to the real estate company Redfin. More than three-quarters of the purchases were paid in cash.
In Atlanta, investors last year bought 32.7% of all homes for sale—the highest share in any major city—followed by 32.1% in Charlotte, North Carolina, and 29.8% in Jacksonville, Florida. And investors purchased more than 27% of homes for sale in Las Vegas, Phoenix and Miami.
In addition, the number of new single-family homes built as rentals increased by 16% last year, according to the National Association of Home Builders.
“These trends are disturbing because when people own their homes they have the opportunity to pass wealth on to the next generation, [and] to start small businesses,” College Park, Georgia, Mayor Bianca Motley Broom said. “They have all sorts of different options that don’t necessarily exist if you’re just renting.”
Officials in the Atlanta suburb of College Park, where 75% of its approximately 14,000 residents are renters, turned away one developer who requested permits for a build-to-rent subdivision of new single-family homes that would never be offered for sale.
“We were not interested in that,” Motley Broom said. “We’re interested in building pathways to wealth through homeownership for members of our community.”
Even in middle America, investors bought $750 million worth of homes last year in Ohio’s three largest cities—Columbus, Cleveland and Cincinnati, according to the Redfin report.
In Cincinnati, where investors purchased approximately 16% of all homes sold in the fourth quarter, the city, through its quasi-governmental Greater Cincinnati Redevelopment Authority—known as “The Port”—issued $14.5 million of environmental, social and government bonds to buy 194 single-family rental homes in a bidding war with 12 institutional investors last December.
The Port officials said they are offering tenants of the homes the opportunity to learn about financial responsibility and homeownership so they can eventually buy the property they currently lease.
“One of the fastest ways to create personal wealth and equity is homeownership,” The Port spokesman Tom Millikin told Route Fifty. “Investors are fundamentally changing the landscape of single-family real estate throughout Hamilton County [Ohio] and throughout the country. Their main objective is to minimize costs and maximize profits. Our objective is to create pathways to homeownership.”
Great Recession Starts the Trend
Before 2010, corporate landlords were absent from the single-family rental home market. But the recession of 2007 to 2009 left in its wake more than 6 million homes in foreclosure. Two dozen or so private equity firms stepped in and scooped them up and then continued to buy more, made easier by a hefty surge in foreclosures related to the pandemic.
They converted most of those properties to rentals, taking them off the for-sale market and, according to housing advocates, driving up the price of real estate and exacerbating the shortage of affordable homes.
Plus, Motley Broom said, “I’m … concerned with when we have folks who are out of state who don’t have a real investment in our neighborhoods and are just out to maximize profits. What does that mean for our community?”
In the Atlanta area, four real estate giants—Invitation Homes, American Homes 4 Rent, Tricon Residential and Front Yard Residential—own a collective 27,000 single-family homes.
Atlanta Mayor Andre Dickens has said he wants the city, where the median home price rose 14% over the past year to $426,000, to place limits on how much real estate institutional investors may purchase.
Some local governments are considering ordinances that would cap the number of rentals in any community or restrict investors from competing with local homebuyers for homes.
“There’s a balance,” Charlotte Davis, deputy director of governmental relations for the Georgia Municipal Association, said. “We, as an organization, never want to assert or signal that there’s anything wrong with renting. There’s obviously not. … [But] if you’re an elected official, you have a vested interest in finding people who have long-term influence and a long-term investment in your community.”
Still, the Georgia General Assembly considered a bill earlier this year that would have stopped cities from placing restrictions on build-to-rent subdivisions. The proposal failed, but Davis said she expects the legislature to take it up again in 2023.
The association, which lobbies the state Legislature on behalf of Georgia’s mayors, opposed the legislation.
Davis said the organization is against any effort to strip mayors and city councils of their control over regulations that affect their cities.
They also are concerned that corporate investors are offering quick settlements and cash up front for the existing stock of affordable single-family homes—already in short supply, she said. Research by Brian An, an assistant professor in the School of Public Policy at Georgia Tech, has shown that those homes might otherwise go to first-time, mostly black homebuyers.
Investor Ty Lee called that perspective “misguided” and “overly simplistic.”
“My firm never competed with consumers,” said Lee, managing director of Common Dwelling, which has purchased upward of 40 single-family homes in the Dallas area and plans to expand to 200 or so in the next year. “We looked for homes that needed repair [and] consumers generally don’t like those. They want to just move in.”
Because of rising mortgage interest rates, Lee said, many would-be homebuyers are instead looking to rent. “More than ever, our [rental] product is in great demand,” he said. “Families still need schools and space but can’t afford to buy.”
Still, Davis said, the investors are converting homes into rental properties with short leases, frequent rent increases and little tolerance for tenants who fall behind on payments.
Lawmakers and Homeowners Fight Back
Some homeowner associations are stopping investors from buying in bulk in their communities by adopting bylaws that ban or cap the number of rentals or require new homeowners to wait one to two years before allowing them to rent out their property.
“Many homeowners’ goal is just to protect the value of their community,” said Phoebe Neseth, director of government and public affairs for the Community Associations Institute. “At the end of the day, the American dream of homeownership is so important to the value of constituents in any of our states and cities, and these companies are just critically impacting, in a very negative way, the ability of consumers to purchase their first homes or new homes.”
Plus, Neseth said, HOAs typically allow one vote per property when adopting regulations or electing officers for their communities. So an investor who owns multiple homes could potentially control the outcome of those votes.
“That’s where a huge portion of heartburn lies,” Neseth said.
In Ohio, a state senator introduced a bill to impose a 45-day waiting period once a private investment firm offers the highest bid on a rental property in foreclosure. During that time, the tenants, if they can match the bid and agree to live in the home for one year, may buy the property. Also during that window, another buyer—an individual who promises to live there for a year and offers more than the winning bid, or a nonprofit affordable housing group—may buy it.
Failing those offers, the investor would be allowed to purchase the home.
State Sen. Louis Blessing, who based his proposal on a similar law in California, told a The Statehouse News Bureau that he doesn’t “believe that this is a panacea. I just hope that it in some way helps somebody gain a home so they can put sweat equity into it and build their dream home.”
Davis said she expects investor interest in single-family homes could grow now that rising mortgage interest rates are tamping the ability of would-be homeowners to afford to buy.
“This is a very complicated issue, and it is going to take a complicated response with … some balance,” Davis said.
Motley Broom agreed that response won’t happen overnight.
“If people aren’t experiencing this in their communities right now, I’d be surprised,” she said, “but they need to know it’s on the horizon.”
Sharon O'Malley is a Maryland-based freelance writer.