Wall Street Landlords Drive Up Rents

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Big Wall Street landlords are facing criticism as their role in rising rents takes center stage amidst a housing affordability crisis.

Blame is being piled on from all sides. From renters venting their frustrations on Reddit to members of Congress in search of ways to lower the price of housing, institutional investors are accused of contributing to the financial challenges homebuyers and renters — including those that would favor to own homes but are priced out of the market — face.

The difficulty is what affordable-housing advocates call the “financialization” of the housing market, which incorporates practices like large investment firms buying single- and multi-family homes and becoming large-scale landlords of massive rental-property portfolios. These corporations have deep pockets and might often out-bid individuals by making all-cash offers, since sellers generally prefer offers that aren’t contingent on a buyer’s ability to get a mortgage.

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Perhaps surprisingly, renters are also affected negatively when investors snap up homes by the handfuls. In line with Philadelphia Federal Reserve research, institutional investors hike rents at 60% higher rates than is otherwise typical in markets where they buy properties. Rates for subsequent leases increase by 7% above average. The research also indicates that the increases implemented by corporate landlords also are likely to push rents from smaller landlords higher.

How corporate landlords impact the rental market

Institutional investors, defined by the U.S. Department of Housing and Urban Development (HUD) as corporations that own 1,000 or more housing units, held roughly 3% of all single-family rentals within the country as of 2022. Newer estimates suggest that this has climbed to 4% today.

Although 4% may not sound like an enormous number, the impact is critical. Data from the National Association of Realtors (NAR) shows that corporate landlords accounted for 15% of all residential purchases in 2021 when mortgage rates were below 3%.

More recently, real estate brokerage Redfin reported that investors purchased 18% of all homes — and 26% of all low-priced homes — sold in the course of the last three months of 2023.

Most investors are interested in markets within the South and Southeast because prices are comparatively lower than in other parts of the country. States like Texas, Georgia, Alabama and Florida have the best share of institutional investors.

Rising rents aren’t the one concern policymakers have with large investors playing a big role within the housing market. These property owners are likely to snap up homes in neighborhoods with lower property values, in line with a 2023 research evaluation from HUD’s policy research arm.

“Investor activity reduces the inventory of homes available for potential owner-occupants to buy, especially homes at cheaper price points,” researchers warned. “These lower-priced homes are the varieties of homes that first-time homebuyers and groups that historically have been excluded are prone to goal.”

In line with each the Philadelphia Fed and NAR, the areas favored by institutional investors are likely to have a bigger share of non-white homeowners and a high percentage of renters.

In a housing market already characterised by low inventory and high prices, HUD found that big investors distort housing supply and demand to the detriment of peculiar Americans. “These [investor] purchases not only take units off the market but in addition apply upward pressure on the costs of the homes that remain on the market,” researchers wrote.

Policymakers are looking for potential solutions

The priority over the dearth of affordability in rental housing caught the eye of Senator Sherrod Brown (D-OH), who introduced the Stop Predatory Investing Act in July of 2023. The bill proposed to curtail investor activity by limiting the tax breaks big investors can get from owning a portfolio of rental homes.

One other bill introduced in 2024 by Democrats in each Congressional chambers seeks to ban using AI and data algorithms by landlords to ascertain rent prices in local markets. The laws’s backers say these algorithms allow property owners to collude and fix prices above what the market would otherwise dictate. Some state and native governments, resembling Latest Jersey and San Diego, California, have already introduced laws prohibiting landlords from using all these tools.

While state and native laws is advancing, housing experts say that a national restriction of any type on institutional investors can be much harder to realize. President-elect Donald Trump has not publicly addressed the problem of institutional investors or their effect on rent prices. With Trump’s pro-business record and Republicans accountable for each the Senate and House of Representatives, there could also be little legislative motion that might ease high rents within the near future.

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