by John Hugh DeMastri
An ongoing shortage of housing will make it easier for banks and other Wall Street investors to take control of the market for single-family rental homes, National Association of Realtors Chief Economist Lawrence Yun told the Daily Caller News Foundation.
Institutional investors, such as banks and other large investors, are on track to own 40 percent of single-family rentals in the U.S. by 2030, MetLife Investment Management predicted, according to CNBC. An ongoing shortage of single-family homes in the U.S. would normally limit growth potential for Wall Street firms looking to buy single-family rentals, but it is also making it easier for them to tighten their grip on the market, Yun told the DCNF.
“We need to build more homes,” Yun said. “Otherwise, institutional investors with deep pockets can corner the single-family rentals market.”
Through last August, institutional investors owned roughly 700,000 single-family rentals, roughly 5 percent of the 14 million such units in the U.S., according to commercial property firm Costar, citing MetLife. The industry was kickstarted in 2012, when the U.S. government began a program allowing big banks to purchase hundreds of thousands of foreclosed homes from Fannie Mae, according to The Atlantic.
Wall Street has been attracted to single-family rentals thanks to “rising rent, easy to find tenants and rising property values,” Yun said. In contrast, families have been struggling to buy homes thanks to a combination of high mortgage rates, climbing home prices and low inventory.
Existing home sales fell 36.9 percent year-over-year from January 2022 to January 2023, after twelve straight months of falling sales, the NAR reported Tuesday. Current inventory of 980,000 unsold homes is enough to supply just three months of demand, a pinch that contributed to home prices rising year-over-year for the record-breaking 131st month in a row in January.
A major player in the space is Home Partners of America, a rental-property manager who purchases homes and rents to tenants who can eventually buy the home outright, according to Fortune. The company announced a pause on home purchases in 38 regional markets last fall after citing “several factors” including demand and climbing prices.
“Home Partners’ platform enables access to single family homes for people who would otherwise be locked out of the market,” a Home Partners of America spokesperson told the DCNF. “Our unique business model enables people to choose a home they love and provides transparent pricing and flexibility at every stage of the process.”
The pause represented less than 5 percent of acquisitions activity at the time, according to Home Partners of America.
However, even with this pause, the company — which is a wholly-owned subsidiary of major investment bank Blackstone and managed 26,000 units as of last August — still intends to continue home purchases in 20 high-growth markets, a Home Partners of America spokesperson told Costar. Blackstone claims to be the largest owner of commercial real estate in the world.
The company — and other Wall Street-backed firms — may simply be waiting for a widely predicted decline in home prices, brought on by an expected U.S. recession, to get a better deal on properties in these regions, Fortune reported.
Some landlords have taken steps to address the national shortage by building homes — in some cases entire neighborhoods — to be used as rentals, CNBC reported. Last January, investment firm Pretium Partners launched a $600 million joint venture with home-builder Onyx+East to construct 2,000 homes for rent, building upon the firm’s portfolio of 70,000 single-family rentals, Bloomberg reported.
“It’s almost a captive market,” Jordan Ash, housing director at the Private Equity Stakeholder Project told CNBC. “They’ve been very explicit about how people are shut out of the homebuying market and are going to be perpetual renters.”
Even if the U.S. government took action to reduce the influence of institutional investors, these landlords do not control enough of the market to alleviate issues of housing affordability, Heritage Foundation Economist Joel Griffith told the DCNF.
Federal subsidization of mortgages and local regulations have driven up the cost of housing more so than Wall Street firms, who control a smaller proportion of the market than smaller-scale “mom and pop” investors, Griffith said.
“In short, blaming real estate investors for the resulting misery may score political points,” Griffith told the DCNF. “But demagoguery does nothing to alleviate it. Lawmakers can start to restore this bedrock of the American dream by removing federal subsidies from the housing market, restricting the Federal Reserve’s power to purchase a limitless quantity of mortgages, and eliminating the artificial barriers to housing supply erected by local leaders. It’s time to stop home prices from going through the roof.”
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John Hugh DeMastri is a reporter at Daily Caller News Foundation.
Photo “Family” by Jimmy Dean.
