Democratic lawmakers are scrutinizing whether the American dream of a suburban home and white picket fence is being seized upon by large institutional investors, costing working people a shot at property ownership.
The House Financial Services Subcommittee on Oversight and Investigations held the virtual panel Tuesday, titled “Where Have All the Houses Gone? Private Equity, Single Family Rentals, and America’s Neighborhoods,” to probe the impacts of firms engaging in what Rep. Al Green, the subcommittee’s chair, dubbed “mass predatory purchasing.”
Shad Bogany, a real-estate agent and advocate who testified before the committee, also said that institutional investors are “creating a generation of renters that will miss out on the benefits of homeownership, the ability to create wealth and stabilize communities.”
“Congress, we need you to act,” Bogany said.
Corporate ownership of single-family rental homes — which comprise about a third of the nation’s rental housing stock — has risen significantly since the 2008 financial crisis, when firms swooped in to purchase foreclosed properties, according to a committee memorandum. And the third quarter of 2021 marked the fastest annual increase in corporate ownership in 16 years, the memorandum said. What’s more, as the housing market grew hotter, and prices skewed higher, the investors had the advantage of being able to purchase homes with cash, trumping first-time and lower-income buyers.
“‘After an extensive investigation into this practice, we have found that private equity companies have bought up hundreds of thousands of single-family homes and placed them on the rental market.’”
In the Atlanta metro area, 42.8% of for-sale homes went to institutional investors in the third quarter of 2021, while investors purchased 38.8% of homes in the Phoenix-Glendale-Scottsdale area during the same period, the committee’s memorandum said.
“After an extensive investigation into this practice, we have found that private equity companies have bought up hundreds of thousands of single-family homes and placed them on the rental market,” Green, a Democratic congressman from Georgia, said during the hearing Tuesday.
“This removes from the housing market homes that might otherwise have been purchased by individual homeowners,” he added. “These corporate buyers have tended to target lower-priced starter homes requiring limited renovation; these homes would likely have been bought by first-time buyers, low- to middle-income home-buyers, or both.”
The homes, Green said, are often located in communities with higher-than-average populations of people of color. For example, the average population of five large investors’ top 20 ZIP codes is about 40% Black, although Black people comprise just 13.4% of the overall population in the U.S. according to survey data from Invitation Homes,
American Homes 4 Rent
FirstKey Homes, Progress Residential, and Amherst Residential, as well as an analysis of government data, according to the committee’s memorandum.
“The average population of five large investors’ top 20 ZIP codes is about 40% Black, although Black people comprise just 13.4% of the overall population in the U.S.”
Republicans, however, said during the hearing that the Biden administration was to blame for rising prices, and accused Democrats of scapegoating Wall Street while attempting to distract people from the worst inflation in decades.
“Today, Americans are being punched in the face with 8.6% inflation,” Rep. Tom Emmer, a Republican congressman from Minnesota, said. “When our constituents go to the grocery store, to the gas pump, or when they look for housing, the stark failure of Congress’ ‘spend your way to prosperity’ policy starts to sink in.”
Institutional investors still account for a relatively small share of the single-family home rental market, Emmer said. And Jenny Schuetz, a senior fellow at the Brookings Institution who testified Tuesday, also noted that the investors are a symptom, rather than the cause, of housing affordability issues. After all, investors are driven to rental-family homes because of existing demand and limited supply, while housing cost burdens among low-income people have been rising for decades.
“Private equity firms and other institutional investors benefit from tight housing supply, but they did not create the problem. Local governments across the U.S. have adopted policies that make it difficult to build more homes where people want to live,” Schuetz said. “Zoning rules that limit the construction of small, moderately priced homes are politically popular with existing homeowners and local elected officials.”
“‘Zoning rules that limit the construction of small, moderately priced homes are politically popular with existing homeowners and local elected officials.’”
When asked for comment, spokespeople for Invitation Homes, American Homes 4 Rent, and FirstKey Homes referred MarketWatch to a statement from the National Rental Home Council’s executive director, David Howard. On behalf of the trade association for the single-family rental home industry, Howard noted that prices were rising for all types of housing due to demand and a short supply of units, and said “single-family rental home providers are not influencing local and national housing market dynamics, as data has clearly shown.”
“As a multitude of data consistently shows, the answer to the question posed in the title of this week’s hearing, ‘Where Have All the Houses Gone?’ is they were never built,” Howard said in the statement. “Simply stated, the supply of housing in the United States has not kept pace with demand.”
The National Rental Home Council and large companies have worked with the committee, including in providing data, and continue to welcome “the opportunity to work with bipartisan policymakers on meaningful solutions to the housing-supply challenges that promote the dignity of rentership and preserve housing choice,” Howard said.
Regardless of how the housing market got to its troubled state, experts and advocates largely agreed tenants were facing higher prices. Rents are increasing nationwide, and prices have risen faster for single-family properties when compared to apartments. Rents on single-family homes were up by 14% in March 2022, marking the 12th consecutive month of record-high growth. according to a recent report from the Harvard Joint Center for Housing Studies, with the largest annual hikes in Miami at 39%.
The impacts of those rent increases could be long-lasting, Bogany said, noting that renters in Black communities could be driven to cheaper areas with more poverty and crime, or even made homeless, rather than given the opportunity to build intergenerational wealth through homeownership. Corporate landlords are also requiring higher credit scores of tenants, which can negatively impact people of color, Bogany said.
“By increasing the percentage of renters in the Black community, the institutional investors are creating a modern-day sharecropping colony governed by 21st century Jim Crow laws,” Bogany said.
“It reminds me of my ancestors’ history over 100 years ago: You live on the land, you have a place to stay, but all your hard work and money goes to benefit someone else,” Bogany added.
Speakers posed multiple solutions to the issue: a landlord registry to provide transparency on the ownership of rental properties in America, a consumer complaint database to track landlords’ actions, tenant protections against eviction, investments in affordable housing, and more.