Companies Want You to Rent, Not Own. Can Lawmakers Stop Them?

If you rent a home when you’d rather own it, shift some of the blame to business owners.

The 10 largest institutional investors owned more than 430,000 single-family rental homes at the end of 2023 and continue to acquire homes to rent to middle-class families. Business owners seek to dominate the neighborhoods they target, simultaneously reducing the inventory of homes for purchase while increasing the inventory of homes for rent.

Members of Congress have introduced bills aimed at forcing the largest institutional investors to significantly reduce their holdings.

The United States suffers from a housing shortage The residential real estate market is expected to range between 1.5 million and 5.5 million units, according to respondents. Institutional investors are taking advantage of this shortage as it drives up prices, making homeownership unaffordable for many. According to the National Association of Realtors, the median resale home price hit a record $419,300 in May. Mortgage rates have remained above 6.5% since May 2023.

As a result, it costs more to buy a first home than to rent in the 50 largest metro areas, according to a Realtor.com report in March. According to Zillow, the median rent for a three-bedroom home was $2,200 in June. That’s $32 less than paying principal and interest on a median-priced home at the average mortgage rate in May – after taking out a 20% mortgage. depositBut who has $83,860 to put down a 20% down payment on a $419,300 house? The combination of high prices and interest rates forces many potential buyers to rent.

Renters occupy approximately 15.9 million single family homes, according to the Census Bureau. Business owners own about 3%. That doesn’t sound like much, but corporate-owned rental homes are concentrated in a few metropolitan areas, primarily Florida, Georgia, the Carolinas, Texas, Arizona, and California. In metro Atlanta, just three companies owned 19,000 homes at the start of 2022, for an 11% market share, according to a study by Georgia State University geographer Taylor Shelton.

“These companies own tens of thousands of properties in a relatively small set of neighborhoods, which allows them to exert very significant market power over renters and renters because they own a very large concentration of properties in these neighborhoods ” Shelton said in a press release. .

Shelton says corporate landlords’ market share has grown since then. “The reality is that corporate control of the single-family rental market in places like Atlanta has only gotten worse,” he said in an email.

Invitation Homes owned 12,726 rental homes in metro Atlanta at the end of 2023. The company exercised its market power by increasing the average rent by 7.1% last year, according to annual reports from the company, while the median house price in the region increased by 1.3%. according to the National Association of Realtors. Invitation also stacks up to $145 in mandatory monthly fees on top of rent: up to $40 for smart home technology, $9.95 for quarterly air filter delivery, $9.95 to manage billing utilities and up to $85 for Internet.

Business Owners increase the rent and charge ancillary fees because they can. “These institutions have outsized power in our housing market, and that influence is growing,” U.S. Sen. Jeff Merkley, a Democrat from Oregon, said in an email. “By 2030, Wall Street could control 40 percent of single-family rental homes in the United States.”

Large companies have two main methods of accumulating rental properties: buy houses when owners put them up for sale and build them to rent. In recent years, build-to-rent has dominated.

In the build-to-rent model, a company builds homes for the rental market from the time it purchases the land. According to an Urban Institute analysis, construction of 120,000 rental homes began in 2022, accounting for 12% of all single-family home starts.

The other way these companies collect homes is to buy them on the resale marketWhen they do, companies have the resources to compete with people looking for homes online.

Progress Residential is the largest real estate owner, with 85,000 homes. It bought most of them on the resale market, competing with individuals. But Progress has an advantage over individuals, a company executive explained on a 2021 episode of the Leading Voice in Real Estate podcast.

“We have an incredibly efficient system for acquiring homes one at a time,” said Chaz Mueller, then CEO of Progress. Every 15 minutes, the company received an update of newly listed homes on its markets. When an algorithm identified a home that met its criteria, the company’s acquisitions team would make an offer “within hours of the home going on the market.” We are therefore able to analyze it very quickly and make an offer. Our offers are all cash, very flexible closing, virtually any time the seller wants to move,” Mueller said.

Merkley, the Oregon senator, introduced a bill that would force business owners to sell their homes. The End Hedge Fund Control of American Homes Act “aims to give all families a fair opportunity to purchase a decent home in a decent community at an affordable price, because homes should be homes for families, not a profit center for Wall Street. ” Merkley said in an email.

His bill would require business owners to sell at least 10 percent of their single-family rental inventory each year for 10 years or face stiff tax penalties. A similar bill has been introduced in the House of Representatives, sponsored by U.S. Rep. Adam Smith, a Democrat from Washington.

Business owners emphasize that they are building homes in a country that needs millions more homes. “We continue to do our part to address the housing shortage by providing new, high-end housing options in attractive, family-friendly locations across the country,” said David Singelyn, CEO of AMH, the third-largest business owner with about 60,000 homes, during a recent earnings call.