As the country grapples with housing affordability and supply crises, housing advocates, policymakers, and researchers are examining trends in investor purchases of single-family homes. Large institutional investors entering the single-family rental market in the years following the Great Recession have caused particular concern, leading at least one state to consider regulating them.
Broadly defined, “investor” in this context suggests an individual or entity that purchases single-family homes to hold long-term, generally operating them as rental properties. These properties are not used as owner-occupied homes or rehabbed for immediate resale to people who intend to live in them. Investors may have large portfolios and multiple properties or be smaller scale.
Some researchers and policymakers have argued that investors are outcompeting potential homeowners in some markets, driving up the cost of homes for sale and raising rents on the properties they operate. Others counter that investors helped stabilize the housing market after the Great Recession and contribute to the overall supply of quality rental homes by improving distressed properties that individual homebuyers don’t want and by building new homes to rent.
However, there is limited evidence describing different types of investors or documenting investor practices. This means that in order to develop appropriate policy responses, more information is needed to fully understand investor activity and its potential impacts on local housing markets.
This blog post begins to unpack the complicated debate and data surrounding investor purchases of single-family homes. It also offers some policy options for local policymakers and practitioners concerned about the impact of investor activity on the quality, supply, and cost of housing in their communities.
What do we know about investors and single-family home purchases?
Investor purchases of single-family housing–including purchases by large-scale investors–have increased steadily since the Great Recession. Between 2012 and 2014, the four largest investor firms—American Homes 4 Rent, Invitation Homes, Front Yard Residential, and Waypoint Homes—emerged and began purchasing foreclosed homes. These firms grew between 2015 and 2019—consolidating the market and merging with smaller firms. Through 2022, the largest firms continued to invest in rental companies that buy and sell single-family homes, and overall investor activity remained high.
Yet two significant challenges make it difficult to understand the role or impact of different types of investors on local housing markets. First, no clear definition exists for the term “investor” or what constitutes an “institutional” investor—such as owner characteristics or number of properties owned. For example, a 2018 HUD study of Atlanta, GA, defined “large corporate landlords” as owning more than 15 single-family rental properties, while the Harvard University Joint Center for Housing Studies (Joint Center) considers investors with at least 100 properties to be “large” and an Urban Land Institute report defines “institutional” investors as those owning at least 2,000 homes.
Second, it is hard to compile comprehensive data identifying or describing property owners. Investors may use multiple corporate identities to purchase properties, and ownership data may not be publicly available.
The lack of standard definitions, coupled with murky property ownership data, makes it challenging to describe investors, analyze investor purchase trends, or compare property owners’ behaviors.
Available data does suggest that investor activity varies nationally, with purchases of single-family homes by either institutional or individual investors highest in the South and West. According to the Joint Center, an estimated 41 percent of all home sales in Atlanta, GA, were to investors in the fourth quarter of 2021. Other cities with high shares of investor purchases include Phoenix, AZ; Las Vegas, NV; and San Jose, CA (36 percent in Phoenix and Las Vegas, and 38 percent in San Jose).
Not all purchases were by large investors, however. For the second quarter of 2022, for example, CoreLogic reported that buyers with more than 1,000 properties accounted for a little more than 10 percent of total single-family investor purchases in Atlanta, Phoenix, and Las Vegas. On aggregate, across the U.S., large institutional investors appear to control a relatively small share of the nation’s total single-family market—with the four largest single-family rental investors holding less than two percent of all rental properties nationally as of 2022 (approximately 200,000 properties). Nevertheless, investor purchases can be more pronounced in some cities and neighborhoods.
Some evidence suggests that institutional investors favor specific types of homes. For example, larger firms such as Invitation Homes and American Homes 4 Rent own homes that average between 1,850-2,000 square feet and were typically built after the year 2000. Meanwhile, midsize firms that are less established tend to focus on slightly smaller and older homes.
What are the implications for localities, neighborhoods, and residents?
Housing advocates and policymakers worry that large and institutional investors have different business models and less connection to local communities than local mom-and-pop owners, and as a result, are worse landlords, less attentive to property and tenant needs, more profit-driven, and more likely to evict tenants and raise rents.
The evidence to support this is mixed, somewhat dated, and difficult to sort out—with experts noting that single-family home investors can bring important benefits as well as harms.
Several notable examples of predatory behavior by investors or large-scale property owners exist. For example, the Charlotte Observer detailed a range of challenges faced by their tenants, including maintenance issues, difficulty contacting the companies that owned homes, and tenants being denied their security deposits at the end of a lease. The Charlotte investigation and similar reporting by the New York Times detailed strategies that institutional investors used to increase profits, which often included adding fees on top of rents or systematically reducing security deposit refunds. However, some previous research, such as a Federal Reserve Bank of Philadelphia report examining the 2006 to 2014 period and a 2015 report from Amherst Holdings and the Federal Reserve Board of Governors, found that institutional investor activity did not appear to lead to higher rents. The Board of Governors report suggested that neighborhoods attracting institutional investors were already likely experiencing rent increases during that time.
Evidence related to evictions is similarly mixed and complicated by differences in how institutional ownership is defined. The Federal Reserve Bank of Philadelphia report found that institutional investor activity did not appear to lead to higher eviction rates between 2006 and 2014, although the authors note limitations in the data used for their analyses.
In contrast, studies of Atlanta and Boston found that “large” landlords (defined as owning more than 15 single-family rentals in Atlanta and more than 100 in Boston) were more likely than smaller landlords to file for evictions. Another study found that institutional investors were more likely to file for evictions than other owners. It’s worth noting these studies focus on filings and do not examine whether filings by different types of owners are more likely to result in actual evictions.
Another common concern is that investors can outcompete individual local homebuyers, raising sales prices or making all-cash offers and effectively reducing the inventory of available homes. Notably, a U.S. House Financial Services Subcommittee survey of the nation’s five largest institutional investors found they typically resold properties through bulk sales instead of sales to individual homebuyers.
These concerns are hard to untangle or confirm empirically, and updated research that includes the pandemic years is needed. Still, they can be particularly problematic for communities of color—since some evidence suggests that, in a few key housing markets, a disproportionate share of institutional investor purchases of single-family homes occurred in predominantly Black neighborhoods. For example, the House Financial Services Subcommittee found that the populations of the top 20 ZIP Codes where large institutional investors purchased single-family homes were 40 percent Black. An Atlanta analysis found that, as large institutional investors bought homes in majority-Black neighborhoods following the Great Recession, the share of owner-occupied homes declined—suggesting purchases by investors may have replaced purchases by individual homebuyers. However, other research suggests this pattern is less pronounced nationally and that the apparent trend of investor purchases in Black neighborhoods reflects the concentration of investor activity in Southern cities with large Black populations.
In contrast, arguments regarding the potential benefits of investor purchases highlight positive impacts on rental housing quality and availability, and on neighborhood and local housing markets during economic downturns. Since investors have more resources to buy excess housing inventory during hard times, they can provide security to the housing market. For example, investors may establish a floor on housing prices, as was the case after the Great Recession.
In addition, investors may purchase distressed properties that would otherwise be unattractive or not financially feasible to individual homeowners or smaller-scale landlords. Many large institutional investors spend significant amounts of money renovating properties and can get repairs done more efficiently than mom-and-pop landlords who lack relationships with suppliers and contractors that can reduce repair times and costs. Existing homeowners in neighborhoods where investor purchases are happening—particularly homeowners of color living in neighborhoods with higher than average Black populations—may build wealth as property values increase.
Finally, institutional investor purchases can help increase the overall rental housing supply in single-family neighborhoods, especially through the emerging build-to-rent sector. This is important because the rental housing supply remains well below demand nationally: the supply of owner-occupied housing grew by 10 percent from 2015-2020, while the supply of rental housing increased by just one percent during the same period. Some of these rental opportunities may be in neighborhoods dominated by single-family homes previously inaccessible to renters.
More research and detailed data are needed to fully understand trends in investor purchases and the impacts of investor purchases on housing markets, and we will provide updated information and policy guidance as new evidence emerges. Below, we discuss some steps localities can take to measure investor activity better and mitigate some common concerns about the possible negative impacts of investor ownership. Several of these policy options—such as code enforcement to ensure properties meet housing quality and maintenance expectations or strengthened tenant protections—are good practice generally and can also help address concerns about investor activity.
- Measure local investor activity
An important step in understanding investor purchases of single-family homes—and for designing effective policies to address concerns about their possible negative impacts on renters, homebuyers, or communities—is to gather better information about property owners and behaviors.
Places seeking to understand the possible impacts of investor activity on local housing supply, costs, or quality can consider collecting data on rent prices and trends over time by owner type or characteristics, such as the number of units owned. For example, the Minneapolis Federal Reserve Bank developed an interactive public data tool that investigates patterns of investor ownership using tax and real estate data to capture tract-level analyses of the largest investors and trends in the share of investor-owned residential properties.
Localities can also develop or modify rental registries to understand property ownership and make landlord information more transparent. More research is needed to understand effective and sustainable rental registry models, but rental property ownership data can help local governments measure investor activity. Concord, CA, Philadelphia, PA, and Minneapolis, MN, offer examples of registries, and a PolicyLink toolkit provides additional guidance. Other examples of ways to analyze institutional investor activity include:
- Research on institutional investors in the Atlanta metro area
- The Charlotte Observer’s interactive data visualization tools
- The University of Minnesota’s research on Minneapolis, MN
2. Improve code enforcement and tenant supports
Improving code enforcement and supporting policies that promote tenant stability can help minimize the risk of property owners failing to maintain their properties and buffer renters from instability due to rising rents. Localities can assess their code enforcement policies to ensure that landlords are well-regulated and tenants know how to report violations. Rental registries or other ownership identification methods can also serve as code enforcement tools, helping local governments proactively monitor properties owned by problem landlords. An Urban Institute report on Philadelphia describes code enforcement models.
Policies that support tenant stability include just cause eviction policies, which make it difficult to evict tenants who are meeting their rental obligations, and, although not always applicable to single-family home sales, right of first refusal policies that allow tenants to match the purchase price of for-sale rental properties. Local policymakers in states whose policies facilitate low-cost, easy eviction processes that can encourage “serial filing” might also work with state policymakers to discourage the practice, which can harm tenants’ stability and credit history.
3. Address underlying housing supply shortages and barriers to homeownership
Concerns about the negative implications of investor purchases of single-family homes are rooted in the overall scarcity of affordable housing and persistent homeownership gaps by race and ethnicity. In the long-term, steps to eliminate barriers to housing production and increase supply would help offset any reductions in the homeownership stock from investor purchases and reduce rising housing prices. For example, localities can pursue zoning policy changes to allow increased density and encourage the development of missing middle housing, such as duplexes, triplexes, and quadruplexes. Localities can also create tax and other incentives for increased supply or for lower-cost housing types, such as accessory dwelling units.
Similarly, addressing barriers to homeownership faced by low- and moderate-income households and people of color can help mitigate some concerns about investor activity. For example, in some neighborhoods, households cannot purchase homes because purchase and renovation costs may exceed their appraised values or because getting a small-balance mortgage can be a challenge. Policies that enable renters to build credit based on a strong rent payment history and down payment assistance programs may also help increase the number of renters able to purchase homes that might otherwise be sold to institutional investors.
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