If you find yourself renting a house when you would prefer to own one, consider placing some of the blame on corporate landlords.
By the end of 2023, the 10 largest institutional investors collectively owned over 430,000 single-family rental homes. These investors are continually purchasing properties to rent out to middle-class families, aiming to dominate the neighborhoods they target. This results in a decrease in the availability of homes for sale and an increase in the number of homes available for rent.
To address this issue, some members of Congress have introduced legislation that would require the largest institutional investors to significantly reduce their holdings.
Renting is More Affordable than Buying
The United States is facing a housing shortage of between 1.5 million and 5.5 million units, leading to higher prices that make homeownership out of reach for many. The median home resale price reached a record high of $419,300 in May, with mortgage rates remaining above 6.5% since May 2023.
As a result, buying a starter home is more expensive than renting in the 50 largest metro areas. The median rent for a three-bedroom house was $2,200 in June, slightly lower than the monthly payment for a median-priced house after a 20% down payment. The combination of high prices and interest rates forces many potential homeowners to continue renting.
Exerting Significant Market Power
Corporate landlords may only own about 3% of single-family rental homes, but their properties are concentrated in specific metro areas, giving them substantial market influence. This concentration allows them to have significant control over rental prices and tenant experiences in these neighborhoods.
According to research, the market share of corporate landlords has been increasing, leading to concerns about their growing dominance in the rental market.
Increasing Rents and Imposing Fees
Corporate landlords, such as Invitation Homes, have raised rents and added various fees to rental agreements. These actions are driven by their market power, allowing them to dictate terms and prices to tenants.
U.S. Sen. Jeff Merkley has warned about the increasing influence of corporate landlords, suggesting that by 2030, Wall Street could control a significant portion of single-family rental homes.
Acquiring Rental Properties
Corporate landlords primarily acquire rental properties through two methods: buying homes on the resale market and engaging in build-to-rent projects. The build-to-rent model has become increasingly popular in recent years, with companies constructing houses specifically for the rental market.
One of the largest corporate landlords, Progress Residential, has utilized its resources and efficient acquisition processes to outcompete individual buyers in acquiring homes for rental purposes.
Legislation to Address Corporate Landlord Dominance
Senator Jeff Merkley has proposed a bill that would require corporate landlords to sell off their extensive housing portfolios, aiming to curb their growing influence in the rental market.
The proposed legislation, known as The End Hedge Fund Control of American Homes Act, aims to level the playing field for families looking to purchase a home. Senator Merkley emphasized the importance of homes being a place for families to thrive, rather than just a source of profit for Wall Street. The bill would require corporate landlords to sell a portion of their single-family rental homes each year or face significant tax penalties. A similar bill has been introduced in the House by Representative Adam Smith.
Corporate landlords argue that they are helping to address the housing shortage by providing new housing options in desirable locations. David Singelyn, CEO of AMH, highlighted their contribution to solving the housing crisis by offering premium housing options across the country. Similarly, Sean Dobson, CEO of The Amherst Group, emphasized the role of corporate landlords in providing housing for families who may not otherwise be able to afford a home.
Overall, the debate over corporate landlords’ impact on the housing market continues, with proponents and critics offering contrasting perspectives on the issue.