A new article published in the Journal of Urban Affairs, “The metropolitan and neighborhood geographies of REIT- and private equity-owned single-family rentals,” explores the characteristics and activities of institutional investors in single-family rental (SFR) housing. Over the past decade, advocates, scholars, journalists, and policymakers have grown increasingly concerned about the potentially negative impacts of institutional investors on access to affordable housing, including the availability of affordable rental housing, rapidly rising rents, the use of junk fees, the physical condition of rental housing properties, and the systematic use of eviction as a rent collection tactic. The article’s findings suggest that institutional investors may be targeting specific SFR housing submarkets based on neighborhood characteristics, which could allow such investors to gain monopolies in certain neighborhoods and increase rents without competition from other landlords.
The largest categories of institutional SFR investors in the U.S. includes real estate investment trusts (REITs) and private equity-backed firms. REITs are companies that enable individuals to invest in larger, income-generating real estate like commercial properties. Because most REITs are registered with the federal Securities and Exchange Commission (SEC) and many are publicly traded, information on REITs and their investment activities is readily available. In contrast, private equity firms involve exclusive pools of investors, are not registered with SEC, and are by definition not publicly traded; thus, their investment activities are far less transparent than those of REITs.
These institutional investors began to avidly pursue SFRs as real estate investments during the foreclosure crisis of the late 2000s and early 2010s, compiling large portfolios of foreclosed homes at discounted prices across the country from entities like Fannie Mae. Simultaneously, the demand for rental housing in the same markets skyrocketed, as homeownership became inaccessible to households that had recently experienced foreclosure or were otherwise considered too risky by mortgage lenders. A growing body of evidence suggests that these firms are concentrating their SFR portfolios in specific rental submarkets, which may generate local monopolies in which institutional investors are free to drive up rents and fees unchecked.
The authors of the article sought to use geospatial analysis to better understand the geographic specialization of REITs and private equity-backed firms and the consequences of this specialization, especially for majority-Black and Latino neighborhoods. Based on the information available from property tax records and other sources, the researchers focused on 17 institutional investors involved in SFR sales listed in a national dataset of real estate transactions occurring between 2010 and June 2017. This dataset was then geocoded and combined with census tract- and Core Based Statistical Area (CBSA)-level data from the 2015-2019 American Community Survey on median household income, median home value, and relative shares of Black, Hispanic, and White residents. Lastly, clustering analyses were used to group the 17 firms by the geospatial characteristics of their investment activities.
The researchers found that SFR investments were highly concentrated in the Sunbelt region of the country, especially metro areas in Georgia, Arizona, Florida, Texas, North Carolina, and South Carolina – a finding consistent with prior research. The cluster analyses reveal that the firms can be grouped into four major categories:
- Cluster 1: Firms that tended to purchase SFRs in neighborhoods with the highest home values and lowest percentage of Black residents. This cluster included the largest REIT firms.
- Cluster 2: Firms that tended to purchase SFRs in neighborhoods with median home values around $150,000 and a greater percentage of Black residents than Cluster 1.
- Cluster 3: Firms that tended to purchase SFRs in neighborhoods with median home values around $100,000 and in majority-Black neighborhoods. These investors tended to be smaller in both size and geographic scope, often focusing on just one or two metro areas, like Atlanta, Memphis, Cincinnati, and Columbus.
- Cluster 4: Firms that tended to purchase SFRs in neighborhoods with the lowest median home values and a “moderate” percentage of Black residents.
The authors conclude that “the targeting of particular neighborhoods means that these firms are, by and large, not actively competing with one another for property acquisitions or tenants,” suggesting a realistic potential for institutional investors to attain monopoly control of local SFR housing markets and drive up rents. The authors express concern that Black renters already on the brink of housing insecurity could be particularly affected, given the frequency with which firms identified in Clusters 2 and 3 tended to target SFR purchases in neighborhoods in lower-cost metros with greater shares of Black residents. They also warn that the growing dominance of institutional investors in the SFR market threatens the ability of entities like community land trusts and nonprofit housing developers to expand their portfolios and improve neighborhood affordability.
As government regulations are unlikely to target the investment activities of REITs and private equity firms, the authors stress that policymakers should implement and enforce tenant protections that limit rent increases, prohibit the use of no-cause evictions, and reform the eviction process by increasing filing fees and the length of notice periods, providing free legal counsel to tenants facing eviction, and instituting case sealing or masking policies. NLIHC maintains a resource bank on recommended tenant protections here.
Read the article at: https://bit.ly/3TGVJUK.