The Great Housing Grab: Are Investment Firms Buying Up Our Homes?

Investment firms are increasingly buying up single-family homes in the US, with data showing that they now own about a quarter of all such properties. This trend has been developing since the Great Recession of 2009, when investors were able to snap up houses at low prices.

The phenomenon has been driven by a range of factors, including rising home prices, changing rental preferences, and advances in technology. While large corporations have been buying houses, smaller, localized groups have also been active in the market.

The impact of this trend has been felt across the country, with states like Florida, California, Arizona, and Texas seeing high levels of investor purchases. The result has been a more competitive market, with fewer available houses and inflated home prices.

Investment firms are purchasing thousands of single-family homes across the US

According to data from the PEW Trust and CoreLogic, investment companies accounted for about 22% of all American homes in 2022, a slight decrease from 24% in 2021. Over the last decade, the number of investors purchasing homes has increased annually from 10% to 15%, except for 2020-2021, which saw an increase of over 80% year-on-year.

This trend is particularly prominent in states along the Sun Belt and Southeastern Coastline, including Florida, California, Arizona, Georgia, Nevada, and Texas. These states have seen a massive influx of investment purchases due to their burgeoning business opportunities, lower property taxes, more lenient landlord-tenant laws, and fewer housing market regulations.

The rise of corporate landlords has made it harder for individual buyers to enter the housing market. Real estate agent Kenneth Wilder noted that his clients have been outbid by investors making cash offers. Investors are able to close on homes quickly and are often unhindered by short inspection periods and flexible terms.

While large corporations like Blackstone, J.P. Morgan Asset Management, and Goldman Sachs have been major players in this trend, it's important to note that smaller, localized groups and private equity firms also contribute significantly to the overall number of investor purchases.

The Stop Wall Street Landlords Act, introduced in 2022, aims to address this issue by imposing a tax on selling transactions to make it more expensive for single-family-rental companies to buy and sell homes. Despite this effort, it seems that investment firms are here to stay in the single-family home market, driven by factors such as rising home prices, changing rental preferences, and advancements in technology.

Local buyers are struggling to compete with investment firms

The trend of investment firms buying up homes en masse started during the Great Recession of 2009. At that time, many single-family homes were purchased on faulty or highly unrealistic mortgages that resulted in foreclosure. As a result, huge numbers of residential homes were sold at foreclosure or at incredibly low interest rates. This gave real estate investors the opportunity and capital to purchase properties in bulk.

Since then, single-family homes have been a consistent investment opportunity for many companies. They buy homes at low cost, make minor repairs, and resell them once the market stabilizes, or turn them into rental properties.

This trend has made it difficult for local buyers to compete when trying to purchase a home. Investment firms have more financial power than individual buyers, and can often make all-cash offers above the asking price, with quick closing timelines. They can also waive inspections and appraisals, making their offers more attractive to sellers.

In Cincinnati, for example, the housing market is extremely competitive, with most homes selling for far above the asking price. Local real estate agent Monika DeRoussel shared her experience: "We wrote five offers this weekend and out of five, four were rejected. Buyers are really struggling."

The situation is similar in Portland, Oregon, where renters and prospective non-investment homebuyers are feeling the impact of investors snapping up homes in record numbers. Data from Redfin shows that across the United States, real estate investors purchased nearly one in five (18.4%) of all homes sold in the fourth quarter of 2021. In Portland specifically, investors purchased 12.6% of homes sold during that period, a 46.3% increase from 2020.

The rising cost of housing and the increasing presence of investment firms in the market have made it challenging for local buyers to compete. As a result, many individuals are priced out of the real estate market and continue renting, even as rental prices have also skyrocketed.

Investment firms are buying up older homes in growing metro areas

Investment firms are increasingly buying up older homes in growing metro areas. This trend, which began in the early 2010s, has seen firms scoop up inexpensive properties, often from the 1970s and 1980s, in locations with promising growth prospects, such as the arrival of a Google or Tesla office. These homes are then rented out or resold for a profit.

The appeal for investment firms is clear: they can access cheaper debt and lower interest rates than individuals, allowing them to make cash offers that are more attractive to sellers. They can also afford to pay a higher sticker price for a home, as their actual cost is lower.

This trend is particularly prevalent in certain US states, including Georgia, Arizona, Nevada, California, and Texas. In Atlanta, for example, Invitation Homes—a $21 billion publicly traded company spun off from Blackstone, the world's largest private equity company—owns 12,556 houses. While this only represents a small percentage of the total number of homes sold in Atlanta each year, Invitation Homes bought 90% of the homes for sale in some ZIP codes in the early 2010s.

The impact of these purchases is significant. Investment firms are reducing the available housing inventory, driving up prices, and making it harder for first-time homebuyers to enter the market. This has led to legislative efforts to curb the power of investment firms, such as the Stop Wall Street Landlords Act, which aims to impose a tax on selling transactions to make it more expensive for single-family rental companies to buy and sell homes.

The rise of corporate landlords has led to calls for legislative change

The rise of corporate landlords has sparked concern among citizens, housing activists, and lawmakers, with calls for legislative change to address the issue.

In the United States, investment firms and financial institutions have increasingly ventured into the single-family home market, buying up properties en masse and converting them into rental homes. This trend has made it more challenging for individual buyers, particularly first-time homebuyers, to secure their own homes. Data shows that in 2022, investment companies owned about a quarter of all single-family homes in the US, with investor purchases accounting for 22% of American homes sold. This has resulted in a more competitive market, reduced housing availability, and inflated home prices.

The actions of these corporate landlords have led to calls for legislative intervention to protect individuals and families from being priced out of the housing market. One notable example is the Stop Wall Street Landlords Act, introduced in 2022 by Democratic lawmakers. The bill aims to impose taxes on selling transactions to make it costlier for large single-family rental companies to buy and sell homes. It also seeks to prohibit government-sponsored mortgage companies from assisting certain large investors in financing their purchases. Additionally, the bill includes a tax credit to support affordable housing development in low-income areas.

At the local level, grassroots efforts and homeowners' associations (HOAs) have played a role in pushing back against the influence of corporate landlords. Some HOAs have amended their bylaws to require new buyers to live in their homes for a certain period before renting them out, making it less appealing for institutional investors. However, the effectiveness of these measures varies, and they are not a widespread solution.

While defenders of the investment sector argue that rental options provided by corporate landlords cater to individuals who might not otherwise qualify for mortgages, critics emphasize the negative impact on housing affordability and the potential for accelerated gentrification and displacement. Lawmakers acknowledge the complexity of the issue and are exploring legislative options to address the concerns surrounding the rise of corporate landlords.

Investment firms are not the only ones buying up properties for investment

Investment firms are indeed buying up properties for investment, but they are not the only ones. According to data from the PEW Trust, investment companies accounted for about a quarter of the single-family home market in the US as of 2022. This number decreased slightly from 24% in 2021, with investor purchases making up 22% of all American homes sold that year. While this still represents a significant portion, it is worth noting that smaller, localized groups and individual investors also play a significant role in the market.

In recent years, there has been a growing trend of individuals and private equity firms investing in properties. According to Business Insider, these investors accounted for 44% of purchases during the third quarter when looking at closings between private equity and independent operations. This includes individuals who engage in "house flipping", where properties are purchased, renovated, and sold for a profit within a short time frame.

The COVID-19 pandemic also played a role in the increase in investor purchasing of single-family homes. Historically low mortgage rates during this period made it more attractive for individuals and firms to invest in real estate. Additionally, changes in homebuyer preferences, such as the shift towards suburban areas, may have contributed to the demand for single-family homes.

It is important to note that investment in rental properties is not limited to residential real estate. Commercial real estate, such as offices, hotels, retail stores, and restaurants, also offer investment opportunities. Individuals and firms can invest in these properties to generate rental income or sell them once their value appreciates.

Overall, while investment firms have been active in the housing market, they are not the only ones driving the trend of buying up properties for investment. Individuals, private equity firms, and smaller groups all contribute to the dynamic landscape of the real estate market.

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