The senator’s proposed anti-home-flipping and vacant-home taxes could strain the likes of Opendoor, Offerpad and Zillow Offers. NAR, meanwhile, disapproves of its rental regulations.
IBuyers, startups that use technology to quickly buy and resell homes, could be in trouble if Senator Bernie Sanders’ new housing plan ever passes into law.
The democratic socialist and presidential hopeful unveiled a sweeping $2.5 trillion plan earlier this month. It calls for rent control, tenant protections and a massive expansion of affordable housing.
But while the plan guarantees “housing for all” it would also deal a major blow to real estate investors, including through “home flipping” and “empty home” taxes.
iBuyers could feel some of the sharpest pains, since they face an uncertain path to profitability. And even if Sanders’ doesn’t get his way, regulations now under consideration at the local level could still damage iBuyers.
“They’re screwed,” said real estate tech analyst Mike DelPrete, when asked about how the Sanders’ plan would impact iBuyers.
“iBuying is proving to be a very low margin business at best, and a money-losing operation at worst (just look at Zillow’s financials),” he said. “An additional tax on home flippers isn’t exactly what Opendoor or Zillow execs would like to wake up to.”
Redfin CEO Glenn Kelman, whose high-tech brokerage operates an iBuyer arm, also thought iBuyers would not fare well under Sanders’ plan.
“Bernie Sanders’s exact proposal is unlikely to become federal law but cities, counties and states are already discussing reforms limiting real estate speculation that would also affect i-buyers, lowering the prices we’d pay for homes.”
iBuyers allow homeowners to request quick offers online, and if they choose to accept them (the offers are often adjusted after a home inspection), sell to the startups in exchange for a 6 to 12 percent service fee. The iBuyer then takes possession of the home, makes minimal repairs, if any, and tries to resell the property lickety-split.
Sanders’ “house flipping” tax would throw sand into the gears of this business model. It imposes a 25 percent tax “on speculators who sell a non-owner occupied property if sold for more than it was purchased for within five years of the purchase.”
Since iBuyers resell most of their homes within weeks or months they would presumably have to pay this tax on their resales.
The plan’s 2 percent “empty homes” tax could also have a negative impact on iBuyers. But that would depend on how long a home would have to be vacant to be subject to it.
Leading iBuyers Opendoor, Zillow and Offerpad either didn’t respond to a request for comment or declined to comment on Sanders’ plan.
The Sanders campaign also didn’t respond to questions about his proposals, including whether Sanders expected it to make profitability impossible for iBuyers.
But this wouldn’t be the first time that the senator has raised the specter of extinction for some private industries. His Medicare for All plan would not only put private health insurers out of business, it would also replace for-profit credit score providers with a free, transparent public credit registry to “eliminate racial biases in credit scores,” Vox recently pointed out.
Kelman, Redfin’s CEO, acknowledged that anti-speculation taxes could also — or, alternatively — lead iBuyers to charge higher service fees, not just lower their bids. “Higher fees, lower offers, it’s all the same to me,” he said.
But he added: “Home flippers who buy and rent properties would be the ones most affected by Sanders-like reforms, more so than iBuyers, who are fairly disciplined about turning inventory.”
When asked about the implications of the Sanders plan for iBuyers, NAR President John Smaby said that, “NAR believes that policymakers must carefully consider the dynamics impacting iBuyers and delicately approach any policy changes that could have broader implications on America’s home buyers and sellers.”
Still, NAR’s “chief concern” with Sanders’ plan, Smaby said, is its rent control proposal. It would cap annual rent increases at 3 percent or 1.5 percent above the inflation rate. Landlords would be able to apply for permission to raise rent above the cap in exchange for making “significant improvements” to their properties.
NAR believes the plan “will harm — not help — our nation’s affordable housing crisis, primarily by deterring landlords from maintaining existing housing stock.”
“NAR maintains our belief that America must face its housing shortage head on by building more affordable homes needed to accommodate the nation’s rising population.”
Sanders’ plan does call for building affordable homes — close to 10 million — but presumably not through NAR’s preferred means.
The senator wants to sink $1.48 trillion over 10 years into the National Affordable Housing Trust Fund — an existing but modestly funded program that grew out of legislation introduced by Sanders in 2001 — to “build, rehabilitate and preserve 7.4 million quality, affordable and accessible housing units necessary to eliminate the affordable housing gap.”
He also wants to invest an additional $400 billion to build two million “mixed-income social housing units.”
Other features of Sanders’ plan include:
- $410 billion in rental assistance
- $50 billion for local governments to set up community land trusts to allow 1 million people to buy “shared equity” homes at below-market rates in perpetuity.
- $32 billion to eliminate homelessness
- Boosted enforcement of bans on predatory and discriminatory lending
- A stop to the sale of mortgages to “vulture funds”
- And stepped-up scrutiny and regulation of corporate landlords.