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Hedge fund-backed investors increased their pace of buying single-family rental homes in the past few years, with the largest five investors growing to own enough homes to rent to everyone in the city of Detroit.
That’s according to survey responses the companies gave to the House Committee on Financial Services, which set its sights on the growing reach of the own-to-rent industry during a hearing on Tuesday.
Witnesses called for expanded protections for renters, more public housing, limits to local zoning rules that prevent new housing from being built and other federal laws they say might help to bridge generational wealth gaps.
“Institutional investors are there to make a profit and it’s a great tool for that,” said Elora Lee Raymond, an assistant professor at the Georgia Institute of Technology. “But the harm that it’s doing to our communities is unsustainable.”
As late as 2011, no single investor in the U.S. owned more than 1,000 homes. The market has changed dramatically in recent years.
Five companies that responded to the committee owned a collective 280,637 homes as of October 2021, they reported to the committee. The companies added 76,325 homes to their portfolios between March 2018 and October 2021.
Homes owned by institutional investors, Q3 2021
- Invitation Homes: 83,512
- Progress Residential: 71,930
- American Homes for Rent: 56,077
- FirstKey Homes: 35,899
- Amherst Residential: 33,219
“These homes would likely have been bought by first time home buyers, low- to middle-income buyers, or both,” said Rep. Al Green (D-Texas), who chairs the Financial Services Subcommittee on Oversight and Investigations.
The trend might be continuing as more people are priced out of the buyer’s market. Homebuilders may be looking to institutional investors to buy more of their product, as increasing prices and mortgage rates price people out of buying new homes, according to a memo to the committee.
“In recent months, home builders have sought out SFR companies to finance construction when buyers have been forced to abandon their homes mid-deal,” the memo reads.
The letter also specifically names OpenDoor, Knock, Offerpad and Zillow as current or former iBuyers that have used technology and billions from hedge funds and other investors.
Those companies buy homes quickly and in cash, conduct a range of repairs and resell the homes for a profit. Zillow shuttered its iBuying arm late last year and sold its homes. The letter’s call-out stands out, because none of the companies rent homes after buying them.
The hearing also comes at a time when the companies have stepped up their investments in single-family homes that are built-to-rent. Billions of dollars of homes are built, often dozens at a time, to remain rental homes in an institutional investor’s portfolio.
Companies have recently begun contracting directly with some of the country’s biggest homebuilders to create more of the housing stock.
The third quarter of 2021 was the fastest year-over-year growth in corporations buying single-family rentals since the Great Recession.
Some on the committee and those testifying said institutional investors are targeting minority communities and preventing them from building generational wealth through homeownership.
“These companies make that wealth gap worse because they buy homes in communities…and instead transfer them to shareholders” instead of selling them, said Sofia Lopez, deputy campaign director of housing at the Action Center on Race and the Economy.
Others said there was evidence that the companies moved to evict tenants, despite federal protections during the onset of the COVID-19 pandemic.
Green pointed out the firms have the advantage of buying homes with cash.
“This all has the troubling effect of displacing residents of color and leading to gentrification of these communities,” he said.
He accused the companies of being “very poor landlords,” with steep rent hikes and evictions including throughout the COVID-19 pandemic, during eviction moratoriums.
Republicans used the hearing to talk about inflation and occasionally push back against the concept of rent control.
“If you want to stop construction,” said Rep. Ralph Norman (R-S.C.), “you try rent control.”
Others pointed to a fundamental lack of all types of housing and local zoning regulations that make it harder and more expensive to build as a primary reason for high rent, low vacancy rates and a built-in incentive for investors to buy more homes.
Jenny Schuetz, a senior fellow at the nonpartisan Brookings Institute, said many of the problems stem from a fundamental lack of supply.
“This is a long-term problem caused fundamentally by the fact that we’re not building enough homes,” Schuetz said.