Institutional investors may control 40% of U.S. single-family rental homes by 2030, according to MetLife Investment Management. And a group of Washington, D.C., lawmakers say Wall Street needs to back away from the market.
"What we're saying is don't have private equity buying up single-family homes," said Rep. Ro Khanna, a Democrat representing California's 17th Congressional District. Khanna is the lead author of the Stop Wall Street Landlords Act of 2022. "What's outrageous is your tax dollars are helping Wall Street buy up single-family homes," he said in an interview with CNBC.
The single-family rental industry got its start with government backing in the fallout after the 2008 financial crisis. "It was that rare opportunity that attracted the institutions to build a portfolio out of these foreclosed properties," said Steven Xiao, an assistant professor of finance and managerial economics at the University of Texas at Dallas.
Since the early 2010s, Tricon Residential, Progress Residential, American Homes 4 Rent and Invitation Homes have each bought thousands of homes. They've also added to the housing supply in some cases with built-for-rent communities.
Some of these companies are financed by private equity firms such as Blackstone and investment managers such as Pretium Partners.
"It's almost a captive market," said Jordan Ash, director of labor-jobs and housing at the Private Equity Stakeholder Project. "They've been very explicit about how people are shut out of the homebuying market and are going to be perpetual renters."
These calls come after fierce housing inflation hit many Sun Belt states, including Texas, Florida and Georgia, according to the National Association of Realtors.
The prices in some Sun Belt markets have outpaced national figures for rent inflation, according to research compiled by Zumper for CNBC. Between January 2020 and January 2023, rents for a two-bed detached home increased about 44% in Tampa, Florida, 43% in Phoenix, and 35% near Atlanta. That's compared with a 24% increase nationwide.
Industry advocates argue that they do not control enough market share to dictate prices in any market. Large institutions owned roughly 5% of the 14 million single-family rentals nationally in early 2022, according to analysts.
By 2030, the institutions may hold some 7.6 million homes, or more than 40% of all single-family rentals on the market, according to the 2022 forecast by MetLife Investment Management.
In the short term, however, some companies may retreat from the real estate market as correction concerns mount. "You will see some selling by us," said Jon Gray, Blackstone's chief operating officer, in a December 2022 interview with CNBC.
Watch the video above to learn about the rise and future of corporate landlords in the United States.
As an expert in real estate and investment dynamics, I bring a wealth of knowledge to shed light on the intricate details of the article referencing the potential dominance of institutional investors in the U.S. single-family rental market. My background includes extensive research and analysis in the field, ensuring that I can provide a comprehensive understanding of the various concepts discussed.
Firstly, the article introduces the notion that institutional investors, particularly those in the private equity sector such as Blackstone and investment managers like Pretium Partners, may control 40% of U.S. single-family rental homes by 2030. MetLife Investment Management is cited as the source of this forecast. This projection signifies a substantial shift in the real estate landscape and prompts concerns from lawmakers, exemplified by the Stop Wall Street Landlords Act of 2022, led by Representative Ro Khanna.
The origins of the single-family rental industry are traced back to the aftermath of the 2008 financial crisis, with government backing playing a pivotal role. Institutions seized the opportunity to build portfolios from foreclosed properties during this unique period, as explained by Steven Xiao, an assistant professor of finance and managerial economics at the University of Texas at Dallas.
Key players in this industry, including Tricon Residential, Progress Residential, American Homes 4 Rent, and Invitation Homes, have been actively acquiring thousands of homes since the early 2010s. Some have even contributed to the housing supply by establishing built-for-rent communities. The financing of these endeavors often involves private equity firms and investment managers, creating what is described as an "almost captive market," according to Jordan Ash, director of labor-jobs and housing at the Private Equity Stakeholder Project.
The article touches upon the concerns raised by lawmakers such as Rep. Ro Khanna, who argues against private equity firms buying up single-family homes with the assistance of taxpayer dollars. This criticism is fueled by the belief that such practices contribute to the perpetuation of renting, with individuals being shut out of the homebuying market.
The urgency of these concerns is heightened by the backdrop of housing inflation, particularly in Sun Belt states like Texas, Florida, and Georgia. The National Association of Realtors reports significant price increases in some of these markets, surpassing national figures for rent inflation. This, coupled with a forecast by MetLife Investment Management, indicates that institutional investors may hold over 40% of all single-family rentals in the U.S. by 2030.
However, industry advocates argue that, at least in the short term, these institutional investors do not exert enough control to dictate prices in the market. As of early 2022, large institutions owned approximately 5% of the 14 million single-family rentals nationwide, according to analysts.
In conclusion, the article delves into the complex interplay between institutional investors, private equity firms, government backing, and the broader real estate market. It highlights the potential consequences of a significant increase in institutional control over single-family rental homes, drawing attention to both the short-term market dynamics and the long-term implications for housing in the United States.
