The landscape of the single-family housing market in the United States is undergoing a significant transformation. Institutional investors, including private equity firms, real estate investment trusts (REITs), and large corporations, are increasingly purchasing single-family homes in bulk.
Corporate Giants Outbid You for Your Dream Home
This trend has profound implications for housing affordability, homeownership rates, and community stability. This report explores the current state of institutional investment in single-family homes, the challenges faced by individual homebuyers, and the potential long-term impacts on the housing market over the next 15 years.
Current Trends in Institutional Investment
Institutional investors, often referred to as “Corporate Giants,” have become major players in the single-family housing market. Companies such as Blackstone’s Invitation Homes, Progress Residential, and Tricon Residential have amassed large portfolios of single-family rental homes.
For instance, Progress Residential owns over 80,000 homes nationwide (ajc)​. These Corporate Giants leverage significant financial resources to outbid individual homebuyers, often making all-cash offers above the asking price​.
The purchase of single-family homes by institutional investors is particularly prevalent in competitive housing markets. In cities like Richmond, Virginia, Jacksonville, Florida, and Philadelphia, a significant portion of home sales has been attributed to investors. Between 2020 and 2021, 19% of single-family home sales in Richmond went to investors, with even higher percentages in Jacksonville and Philadelphia​ (Shelterforce)​.
Challenges for Individual Homebuyers
Individual homebuyers, especially first-time buyers, face substantial challenges in competing with institutional investors. These companies’ ability to make quick, all-cash offers puts them at a distinct advantage.
As a result, many potential homeowners are priced out of the market, leading to reduced homeownership rates and increased demand for rental properties​.
The competitive advantage of institutional investors exacerbates issues of housing affordability. As these companies acquire more properties, the supply of available homes for sale decreases, driving up prices. This trend not only affects first-time buyers but also existing homeowners looking to move up in the market​​.
Long-Term Impacts Over the Next 15 Years
If the trend of institutional investors purchasing single-family homes continues, several potential outcomes could arise over the next 15 years:
- Increased Home Prices: With institutional investors outbidding individual buyers, home prices are likely to continue rising. This will make it increasingly difficult for first-time buyers to enter the market, further exacerbating issues of housing affordability​.
- Reduced Homeownership Rates: The ongoing acquisition of single-family homes by institutional investors could lead to a decline in homeownership rates. This trend will particularly impact younger generations who may find it challenging to save for a down payment in an increasingly competitive market​.
- Expansion of the Rental Market: The growth of the single-family rental market will provide more rental options for families who cannot afford to buy homes. However, this could also lead to higher rental prices as demand for rental properties increases​.
- Quality of Rentals: There may be variations in the quality of rental housing. While some institutional investors might maintain high standards, others may neglect maintenance and tenant services, leading to deteriorating living conditions in some areas​.
- Wealth Accumulation by Investors: Large institutional investors will continue to accumulate wealth through property appreciation and rental income. This could lead to further economic consolidation and an increase in income inequality​ (ajc)​​ (Shelterforce)​.
- Legislative and Regulatory Responses: In response to these trends, there might be increased legislative efforts to regulate corporate ownership of single-family homes. This could include limits on the number of properties a single entity can own or stricter regulations to protect tenants​​.
- Community Stability: Higher turnover rates associated with rental properties could affect community stability and cohesion. Homeowners tend to stay longer in their homes, contributing to more stable neighborhoods, whereas rental properties often have higher turnover rates​.
- Gentrification and Displacement: The aggressive purchasing strategies of institutional investors could accelerate gentrification, leading to the displacement of long-term residents and altering the socio-economic makeup of neighborhoods​.
Conclusion
The increasing involvement of institutional investors in the single-family housing market presents significant challenges and potential long-term impacts.
While these investors provide much-needed rental housing, their practices also drive up home prices and reduce homeownership opportunities for individual buyers.
Over the next 15 years, these trends could lead to increased economic inequality, changes in community dynamics, and a greater need for regulatory intervention to balance the interests of investors, homeowners, and renters.
Sources
- Atlanta Journal-Constitution: “Across metro Atlanta, large companies are buying up single-family houses”​ (ajc)​.
- Shelterforce: “Bill Would Ban Hedge Funds from Owning Single-Family Homes”​ (Shelterforce)