Trends 2023: How investors are changing the single-family landscape
There are nearly 15 million single-family rental households in the U.S., and investors have been capturing an increasing share of that massive market.
Editor's note: Since 2006, the Swanepoel Trends Report has provided in-depth research and analysis to help leaders understand the forces shaping residential real estate. This exclusive series of excerpts highlights each trend featured in the 2023 report.
Analyzing the Increasing Presence of Single-Family Home Investors: Over the past decade, real estate investors have gained a significant foothold in the single-family market. Many of these are small, mom-and-pop investors, but institutional investors, who can buy homes in bulk, are responsible for an increasing share of purchases. This excerpt looks at some ways in which investment purchases affect the housing market and communities.
Market Impact of Investors
The conversion of single-family homes to rentals removes homes from the market that would otherwise be purchased by households that would occupy and live in the home, especially first-time buyers. The impact is significant at a time when relatively few homes are available for sale and prices have risen greatly.
The focus of much of the concern has been on the impact of large institutional buyers for the simple reason that small- and medium- sized investors likely do not have enough sway to affect local market dynamics. While owning nearly nine-in-ten homes for rent, this ownership is spread out over thousands of individual investors in markets across the country.
Owning 10 or 20 homes in metropolitan Atlanta will not allow a particular investor to affect the local housing market for either would-be buyers or renters. However, a large-scale investor owning several hundred homes clustered in different neighborhoods across the metropolitan area may be a different story.
Community Effects
In Minneapolis, a 2021 study by the Federal Reserve Bank shows that the share of investor-owned properties rose from less than 2 percent in 2006 to 4 percent by 2021.
However, looking more closely, the share of investor-owned properties was over 20 percent in several census tracts topping out at 30.7 percent in one Northeast Minneapolis census tract. While small investors own most of the properties, the highest growth has been among the very largest investors, going from less than 3 percent in 2021 and earlier to 11 percent by 2021. Two of the largest companies owned more than 800 homes each in the metropolitan area.
The Fed researchers concluded that the strategies pursued by investors differed according to the neighborhood characteristics.
In areas with higher poverty and low property values, investors purchased the cheapest properties while charging relatively high rents to residents with few other housing options. They had little incentive to invest in anything more than minimal maintenance since these properties would not likely appreciate much in value.
In more affluent, lower-crime areas, investors took better care of their properties with the prospect of a higher resale price later.
More generally, research has documented that as the homeownership rate decreases, the markers of neighborhood stability and health decline as well. This occurs largely because homeowners generally move less frequently and invest more time and resources in their homes and community social capital than shorter-tenure renters. To the extent that communities with a high share of investor-owned rental properties already experience elements of neighborhood instability, research offers a cautionary insight into the wider implications of rising single-family residential investor ownership.
Concerns about the impact of institutional investors has also grabbed the attention of the U.S. Congress.
Research presented at a June 2022 US House of Representatives Committee on Financial Services hearing noted that institutional investors were far more likely to start eviction proceedings than other investors and more likely to pile on various fees. Furthermore, rent increases tended to be larger and homes in greater disrepair compared with other homes in the community.
Digital and printed copies of the 2023 Swanepoel Trends Report are available for purchase at t3trends.com.