The real estate investing market has always been a lucrative pursuit. Its roots trace back as far as the late 19th century. Since then, the market has been forced to evolve through several transitionary periods such as the Great Depression and the housing crisis of 2008.
We may be on the doorstep of a new transitionary period with the dawn of corporate investing in the residential housing market. This modern David versus Goliath story pits everyday prospective homebuyers against corporations with billions in annual revenue. How are everyday buyers expected to compete with ultra-wealthy investors? Corporate investors bought up nearly a quarter of all homes sold in America in 2021, according to an analysis of CoreLogic data. This new trend threatens to push America into a nation of renters.
Corporations can afford to muscle just about any buyer off the negotiation table for a suburban single-family home. By paying top dollar, corporate entities create a more competitive market in which home prices are inflated. These conditions make less room for everyday homebuyers who must stick to a budget in order to make the mortgage payment each month.
When corporate buyers descend in a large scale on any particular community, the impact is troubling. Soon, all ”For Sale” homes in that neighborhood reflect a higher price because of nearby recent comparable sales. These higher prices eliminate the opportunity for home ownership for many middle-class families, forcing them into a situation where they must either move further from the metro city center and thus further from job opportunities or simply rent a home from the corporate investor.
Which Neighborhoods Are Targets?
Corporate investors particularly target the cheaper homes in less affluent suburban neighborhoods. Typically, their target price range has been anything under $300,000.
The demographic this knocks out of contention for home ownership includes young college-educated under 30-year-olds looking for their first home as well as less affluent adults who are fed up with renting and have finally found a way to put enough away for a decent down payment. Unfortunately, after a wave of corporate investors, there is likely nothing left on the market within their price range. This forces them into a situation where they continue to rent. Because of the higher market value of homes, corporate landlords can justify charging a higher rent.
Legislative Remedies
With few options and hopelessness about the manipulated housing market, former home seekers turned tenants now must plead their expensive housing situation to state and local lawmakers. Rent control measures have historically only been applicable to multifamily housing such as apartments and condos. The conversation has shifted in the last 10 years, however, with many tenants experiencing absurd rent increases on an annual and even month-to-month basis levied by corporate landlords.
State lawmakers are now recognizing the issue and establishing laws to make corporate landlords’ siege on residential America less intrusive. Rent control measures have been extended to protect single-family home renters in the states of California and Oregon. The outlook for other states to follow suit is optimistic.
In late October 2022, California Democrats introduced the Stop Wall Street Landlords Act to the House of Representatives. This bill would deny certain tax benefits to large investors whose assets exceed $100 million in a taxable year for investment in single-family housing, according to Congress.gov.
Many laws and policy shifts emanate from California across the nation, so corporate investors will have to hold their breath in the wake of these policy changes to see how their revenues are affected. For the tenants of corporate landlords, it feels like this is a win but there is certainly an uphill battle on the horizon. With rent control policies and specific legislation in the framework for single-family home renters, we are at least beginning to combat this onslaught by corporations in the real estate investment market.
Home ownership remains the greatest source of wealth and security for families. It is written into our aspirations from a young age as part of the coveted American dream. It is a significant source of emotional stability as a place to raise children and develop roots within a community.
It is hard to feel connected to a community when you are struggling to pay rent each month and fighting for your right to an equitable future. If the tide does not turn quickly enough, we could be in store for a nation of renters, corporate investors raking in cash by the billions, and a reset of the residential housing market.
Taylor Miller is a project specialist and marketing coordinator for Owner Builder Advisors, where he helps developers and owners navigate the construction process. He has been actively involved in the construction and inspection industries since 2016.
He also manages marketing campaigns, social media, and document generation/compilation for both formal and informal application processes.
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