Expert Commentary

How neighborhoods fare when institutional investors buy single-family homes: A research roundup

Since the Great Recession, the single-family home rental market has flourished in the Southeast and Southwest. Here's what the research says about how institutional investors affect neighborhood dynamics.

single-family home
(Avi Waxman / Unsplash)

In a comprehensive analysis published last year, Tim Henderson of Pew Charitable Trusts’ Stateline news service crunched property numbers from data firm CoreLogic and found nearly a quarter of all single-family homes sold in the U.S. in 2021 were bought by investors. This was up from about 15% annually since 2012.

Institutional investors entered the single-family home rental market en masse following the Great Recession from December 2007 to June 2009.

Subprime mortgage foreclosures during the late-2000s downturn meant a glut of homes were available for cheap. Investment firms swooped in and, particularly during the first half of the 2010s, swelled their portfolios.

New technology spurred growth: Renters could make payments on the internet rather than having to interact with a person. Then-Federal Reserve Chairman Ben Bernanke also championed the practice of investors buying foreclosed homes.

Institutional investors are typically companies that buy homes, sometimes with all-cash offers, sight unseen, and they sometimes buy homes that need major repairs.

By 2021, institutional investors had “a notable presence in more than 50 U.S. cities, versus a concentration in around 3 to 5 cities in the ‘80s and ‘90s,” according to a December 2021 report from analysts at MetLife Investment Management.

About 3% of home purchases in 2021 were made by large investors, those with more than 1,000 properties, according to the Stateline analysis.

Nationally, Invitation Homes owns more than 80,000 single-family rental properties, making it the largest such firm in the U.S. Second is American Homes 4 Rent with about 50,000 properties, according to one of the academic papers featured in the roundup below.

Institutional investors tend to focus on cities that have the potential for strong job growth and a lack of housing supply. Since the Great Recession, they have focused primarily on the Southeast and Southwest.

Atlanta has led the way nationally, followed by Phoenix, Tampa, Florida, and Charlotte, North Carolina, as the top four cities where institutional investors own rental properties, research shows.

Other cities with a relatively large presence of institutional investors include Dallas, Houston, Chicago, Las Vegas, Orlando and Jacksonville.

If you are reporting on housing in the U.S., you will want to inform your reporting with insights from the peer-reviewed research summarized below. The findings are nuanced.

For example, when institutional investors buy in a neighborhood, they may displace long-term residents, according to the research. But the presence of institutional investors may also improve neighborhood quality by fixing up run-down homes and investing in infrastructure, such as streetlights.

Keep reading for more insights and to understand the history behind the rise of this market.

Do Wall Street Landlords Undermine Renters’ Welfare?
Umit Gurun, Jiabin Wu, Steven Chong Xiao and Serena Wenjing Xiao. The Review of Financial Studies, January 2023.

The study: The authors use detailed 2016 data on property ownership, rental payments and crime reports by U.S. Census tract to analyze changes in rent costs and quality of life outcomes in neighborhoods where institutional investors that own single-family homes acquire one another. The data cover states across the South, Southwest and West, including Arizona, California, Florida and Texas.

Acquisitions may decrease competition — if there are two institutional investors in a neighborhood and that number drops to one because of a merger, rents will likely rise.

But acquisitions may also improve economies of scale — buying in bulk, essentially. Institutional investors may be able to make quality-of-life improvements across a large number of properties more inexpensively than if those properties were individually owned. For example, one institutional investor in the sample, “installs home automation systems in its properties that allow renters to control door locks remotely and monitor activities within the homes,” the authors write.

The findings: Across neighborhoods where there was an acquisition that netted five or more properties for the acquiring firm, average rents increased 5.2% while crime reports to law enforcement decreased 5.5% for the following year. The authors also observe more job postings for local security guards in the year after an acquisition, while streetlight radiance, referring to streetlight brightness, also increases. Eviction rates in those neighborhoods affected by an acquisition that netted five or more properties also increased, by 4.4%.

In the authors’ words: “Our study provides a more nuanced view of the effect of large institutional landlords on renters’ welfare in the postcrisis U.S. neighborhoods: institutional landlords leverage market power to extract greater surplus from renters, while improving the quality of rental services by enhancing neighborhood safety.”

How and Why U.S. Single-Family Housing Became an Investor Asset Class
Brett Christophers. Journal of Urban History, July 2021.

The study: The author explores historical evidence of why institutional investors purchased single-family homes after the Great Recession ended in 2009. The paper particularly focuses on Blackstone, an asset management firm that seeks to invest in ways that maximize returns for clients, including pension funds and wealthy people.

The findings: In a March 2009 letter to shareholders, Blackstone CEO Stephen Schwarzman “spoke effusively about the investment opportunities the group was at the time eyeing, in the midst of deepening national and global recession. Among the most attractive opportunities, he said, were in real estate, and especially urban residential real estate,” the author writes. Blackstone and other institutional investors, such as Colony Capital, would go on to heavily invest in housing over the early part of the 2010s.

At the peak of this investment activity, October 2012, 20% of home sales were made by investors. By 2016, Blackstone had acquired nearly 50,000 homes under the name Invitation Homes, and acquired another 30,000 homes in 2017 when it merged with Starwood Waypoint — one of the large mergers analyzed in the previous paper, “Do Wall Street Landlords Undermine Renters’ Welfare?” The other large firm at the time, American Homes 4 Rent, controlled 50,000 properties. “No other entity owned more than 25,000,” Christophers writes.

By 2019, Blackstone had sold its stake in Invitation Homes, which still exists as a publicly traded company. Blackstone exited the single-family home market having profited roughly $3.5 billion.

In the author’s words: “Blackstone and other large investors began buying single-family homes in the context of a transformed ideological milieu, in which it was no longer widely believed that all American families could or should be homeowners … there can be little doubt that this shift combined with those in technology, finance, and housing supply to make the ‘unprecedented’ investment opportunity that was distressed single-family housing considerably more compelling, its logic more unanswerable, than it would otherwise have been.”

Gentrifying Atlanta: Investor Purchases of Rental Housing, Evictions, and the Displacement of Black Residents
Elora Lee Raymond, Ben Miller, Michaela McKinney and Jonathan Braun. Housing Policy Debate, April 2021.

The study: The study focuses on investor-owned apartments, rather than single-family homes, but is instructive as to what happens demographically in neighborhoods when large numbers of dwellings are owned by investors. In an analysis based on eviction data and nearly 9,000 apartment sales from 2000 to 2016, the authors explore whether the rise of investor-owners in Fulton County, which includes Atlanta, was associated with evictions of Black residents there — and, whether those evictions led to changes in the racial makeup of neighborhoods.

The findings: Eviction filings hovered around 40,000 per year, but eviction judgments, in which a court forces a renter to leave their apartment, rose 8% per year from 2006 to 2016. Evictions were also “much higher in predominately Black neighborhoods in south Atlanta and south Fulton County,” the authors write. They specifically associate an investor multifamily building purchase with 33% higher odds of a neighborhood experiencing a spike in evictions within a year of the transaction.

The authors define an “eviction spike” as a year in which eviction judgments occur at a one-quarter higher rate than the 200o-to-2016 average. The authors also compare demographically similar neighborhoods with or without an investor purchase. The nearly 800 blocks studied had an average of 1,635 residents. Those neighborhoods with at least one investor purchase had an average of 166 fewer Black residents and 109 more white residents over the six years after the transaction.

In the authors’ words: “Cities, community advocates, and policymakers wishing to create early warning systems to predict displacement should focus on real estate transaction data such as sales, evictions, foreclosures, and rising prices, rather than relying extensively on census data regarding demographic transition. In addition to measuring events that provide an early warning of displacement pressures, real estate data can be obtained in real time.”

Buy-to-Rent Investors and the Market for Single-Family Homes
Walter D’Lima and Paul Schultz. The Journal of Real Estate Finance and Economics, September 2020.

The study: What happens to overall home prices in an area where investors focus their purchasing? The authors seek to answer this question using data on more than 100,000 single-family home transactions by eight major buy-to-rent investors from 2000 to 2015 across seven states that saw large upswings in investor purchases following the Great Recession: Arizona, California, Florida, Georgia, Illinois, North Carolina and Nevada.

The findings: Single-family home investors who intended to rent those homes tended to cluster in areas where home prices fell sharply following the late-2000s recession. The authors find single-family homes within a quarter mile of an investor purchase saw their home values increase within the next year by 10.5% more than properties 50 to 75 miles away, and 3.4% more than properties 5 to 10 miles away.

In other words, individual homeowners who were able to keep their homes saw their home values rebound more quickly in neighborhoods where institutional investors were active. One minor reason the authors offer is that if an investor purchases a foreclosed property, they are going to get the home fixed up and rented as soon as possible. And a maintained home with people living in it is better for other nearby property values than a vacant home falling into disrepair.

Another reason is that these investors intended to rent their properties, meaning they were no longer available for sale. This reduced the supply of buyable houses in an area, driving up prices.

In the authors’ words: “Prospectuses and company press releases suggest that all of these buy-to-rent investors have a similar business model … They typically spend $20,000 to $25,000 to renovate properties before renting them out. They attempt to take advantage of economies of scale by purchasing large numbers of houses in a metropolitan area. Buy-to-rent investors prefer to rent to middle class families. Their preferred purchase is a three-bedroom, two-bathroom house in a good school district. All of these buy-to-rent investors entered real estate markets at about the same time.”

Capitalizing on Collapse: An Analysis of Institutional Single-Family Rental Investors
Gregg Colburn, Rebecca Walter and Deirdre Pfeiffer. Urban Affairs Review, May 2020.

The study: While the demographic and financial effects of institutional investing in single-family homes has been recently well-documented, the strategies these investors use are less known. The authors examine firms’ prospectuses and corporate filings to understand how these investors do business.

The findings: The market for single-family rentals owned by institutional investors grew rapidly in the first half of the 2010s, from 40,000 such homes in 2012 to almost 120,000 homes by 2014, the authors write. Single-family home prices recovered over the next few years, and faced with more competition from individual home buyers, institutional investors gained only another 40,000 homes by 2018.

Investors tend to target cities with the potential for job growth, strong demand for rentals, and low overall housing supply compared with demand. Firms use technology such as mobile and web apps, rather than personal interactions, to collect rent, assess fees and choose tenants with strong credit ratings and steady household incomes. Mergers and acquisitions among the initial firms in the market mean remaining firms take advantage of economies of scale, reducing operating costs and increasing profits.

In the authors’ words: “The increasing participation of institutional investors raises broader concerns about competition for moderately priced single-family housing that is becoming increasingly scarce. As the homeownership rate increases and mortgage markets normalize, a growing number of households want to purchase single-family homes. But individual households seeking to purchase relatively low-priced single-family homes now face potential competition from well-capitalized firms that want to acquire the same properties.”

Further reading

An Antitrust Framework for Housing
Renee Tapp and Richard Peiser. Environment and Planning A: Economy and Space, November 2022.

Real Estate Investors and the U.S. Housing Recovery
Lauren Lambie-Hanson, Wenli Li and Michael Slonkosky. Real Estate Economics, June 2022.

Gentrifying Atlanta: Investor Purchases of Rental Housing, Evictions, and the Displacement of Black Residents
Elora Lee Raymond, Ben Miller, Michaela McKinney and Jonathan Braun. Housing Policy Debate, April 2021.

The Financialization of Single-Family Rental Housing: An Examination of Real Estate Investment Trusts’ Ownership of Single-Family Houses in the Atlanta Metropolitan Area
Suzanne Lanyi Charles. Journal of Urban Affairs, October 2019.

Institutional Investment, Asset Illiquidity and Post-Crash Housing Market Dynamics
Patrick Smith and Crocker Liu. Real Estate Economics, November 2017.

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