Research by the U.S. House Committee on Financial Services has identified the top causes behind the dramatic increase in investor ownership of private homes. The issue is being discussed today during a hearing called, “Where Have All the Houses Gone? Private Equity, Single-Family Rentals, and America’s Neighborhoods.”
Staff prepared research for the Subcommittee on Oversight & Investigations that includes a survey of the five largest owners and operators of single family rental (SFR) homes in the United States: Invitation Homes, American Homes 4 Rent, FirstKey Homes (owned by Cerberus Capital Management), Progress Residential (owned by Pretium Partners), and Amherst Residential.
Committee staff found that the five companies:
- Tended to purchase homes in neighborhoods with significantly larger Black populations than the national average. The average population represented across the companies’ top 20 ZIP codes was 40.2% Black, which is over three times the Black population in the U.S. (13.4%).
- Tended to purchase homes in neighborhoods with approximately 30% more single mothers than the national average, with 12.9% of households headed by single women with children under 18, versus the 9.8% of such households in the total U.S. population.
- Grew significantly over the timespan of the survey, with an aggregate 27% net growth of their housing stock between March 31, 2018, and September 30, 2021. This represented a total net property gain of 76,235 single family rental homes.
- Acquired homes through multiple channels, including the Multiple Listing Service, home foreclosure auctions, and by building homes to rent. However, they tended to sell homes primarily through bulk sales to other institutional investors, and very rarely sold homes to their own tenants or to individual homebuyers. The five companies purchased 21.9% of their homes through bulk sale, sold 61.5% of their homes through bulk sale, and sold 0.5% of their homes to their tenants.
- Make cash offers on homes by offering bonds and other financial instruments to investors to raise capital without needing to take out home mortgage loans to finance their purchases. The five companies offered an aggregate of $24.7 billion in bonds and other financial instruments to investors during the survey period.
- Tended to purchase homes in neighborhoods with lower home prices and higher rents. As illustration, the average median home value of the five companies’ top 20 ZIP Code Tract Areas was ($198,766), approximately 14% below the national median home value ($229,800). The average median gross rent in the five companies’ 20 top ZIP Code Tract Areas ($1,259) was approximately 13% above the national median ($1,096).
- Increased fees per lease per year by approximately 40% over the course of the survey period ($147.20 in 2018 versus $205.29 in 2021).
- Saw the total number of tenants behind on rent and fees increased by almost two-fold, with tenants with rental arrears increasing from 11.3% in 2018 to 19.1% in 2021, and the number of tenants with fee arears increasing from 10% in 2018 to 20.7% in 2021.
Congressional research also showed the automation of property management by institutional investors may put tenants at risk of mismanagement and eviction by making it difficult for tenants to contact and hold them accountable for problems when they occur.
During the pandemic, as renters lost jobs and wages and could not pay rent, Congress enacted the federal eviction moratorium that was later extended by the Centers for Disease Control and Prevention. Despite federal and local protections, some corporate landlords continued to file evictions against renters, who were disproportionately Black and Latino.
Securitized single-family rental homes, the Congressional research showed, are heavily clustered in the Sunbelt, which comprises the Southeastern, Southwestern, and Western U.S. regions, and in communities that previously experienced high foreclosure rates following the 2008 financial crisis. Mass foreclosures that disproportionately affected lower-income homeowners and homeowners of color who were targeted with subprime mortgages, pushed many families into renting and contributed to the current U.S. housing crisis.
To meet investor’s return expectations, SFR home landlords often prioritize maximizing profits. As a result, evidence suggests that renters in institutionally owned SFR homes often experience higher rent increases, inflated fees, and diminishing quality of housing over time. For example, a 2017 case study of Los Angeles County found that tenants renting from the largest SFR companies faced higher rent increases and greater maintenance responsibilities compared to other renters.
