Aug 2, 2023
While most Americans are anxiously watching the housing market show signs of cooling after running red-hot for years, one group may be cheering for a crash.
After the 2008 financial crisis, corporations and institutional investors looked to ramp up their purchases of residential real estate, including single-family rentals (SFRs).
Advertisement
Now analysts worry history may repeat itself. According to a 2022 report from MetLife Investment Management, 4-in-10 single-family rental homes could be owned and controlled by Wall Street within just seven years.
This could pose a problem not just for ordinary renters, but also for the rest of the economy. Here’s a closer look.
Wall Street wants to buy your block
After the 2008 financial crisis, home prices had plummeted while the central bank reduced interest rates to support the economy. Wall Street suddenly had access to cheap capital and cheap distressed assets.
For much of the past decade, interest rates have been lower than the rental yield on most properties. That meant the corporate-landlord business model was lucrative. Companies backed by private-equity firms like Blackstone and Pretium Partners purchased hundreds of thousands of homes.
Institutional players, like Tricon Residential, Progress Residential, American Homes 4 Rent and Invitation Homes, have extensive portfolios of rental homes across the country, currently owning some 700,000 SFRs, or 5% of the market’s inventory, according to the MetLife report.
Given the recent surge in inflation and the Federal Reserve’s raising of interest rates in response, many ordinary homeowners could be forced to sell, as these financial pressures seem likely to persist. MetLife believes institutions will step in to buy many of the newly available homes, along with others that will be constructed in the coming years, giving the Wall Street-backed investment firms control of 7.6 million SFRs — 40% of the market — by 2030.
Must Read
- Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake — here’s what it is and the simple steps to fix it ASAP
- Robert Kiyosaki begs investors not to miss this ‘explosion’ — says this 1 asset will surge 400% in a year
- Vanguard reveals what could be coming for U.S. stocks, and it’s raising alarm bells for retirees. Here’s why and how to protect yourself
Join 250,000+ readers and get Moneywise’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
The impact on rent
Researchers from the University of California, Berkeley dug into the public financial reports from institutional landlords and found reason to believe that ordinary Americans are bearing the brunt of the ongoing Wall Street takeover of residential housing.
Institutional landlords, according to the 2022 study, enjoyed a period of easy profits after the 2008 financial crisis because many of the single-family homes they bought were cheap and foreclosed.
Advertisement
Now that pool has dried up, but the pressure to deliver returns hasn’t.
So corporate landlords have pushed rents higher, added ancillary fees that increase the burden on tenants and even appealed property tax assessments to reduce their costs at the expenses of the surrounding communities.
The researchers recommended the government get involved to prevent corporate landlords from consolidating too much market power. They recommend better transparency about homes that are owned by corporate entities, better protections for tenants and strict limits on the number of homes institutions can buy within a market.
Will the government step in?
There are some signs that the government is considering the impact of corporate landlords on American families. Democratic representatives Ro Khanna, Katie Porter and Mark Takano introduced the Stop Wall Street Landlords Act in October 2022.
The bill could potentially place limits on institutional capital in the SFR market. Corporations and private equity firms may have to pay higher land transfer taxes or potentially lose the mortgage interest deduction benefit.
“What we’re saying is don’t have private equity buying up single-family homes,” Khanna told CNBC in an interview earlier this year. “What’s outrageous is your tax dollars are helping Wall Street buy up single-family homes.”
You May Also Like
- Turning 50 with $0 saved for retirement? Most people don’t realize they’re actually just entering their prime earning decade. Here are 6 ways to catch up fast
- This 20-year-old lotto winner refused $1M in cash and chose $1,000/week for life. Now she’s getting slammed for it. Which option would you pick?
- Warren Buffett used these 8 repeatable money rules to turn $9,800 into a $150B fortune. Start using them today to get rich (and stay rich)
- Here are 5 easy ways to own multiple properties like Bezos and Beyoncé. You can start with $10 (and no, you don’t have to manage a single thing)
Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
