By Mick Harris
Between a red-hot housing market and rising interest rates, prospects are looking bleak for would-be homeowners in our region. For the most part, however, Oregon buyers have avoided one significant obstacle that has plagued other markets—competition with corporate investors for limited residential housing.
Will Oregon experience this trend soon?
It’s likely. Washington has experienced some of this activity and California is a hotbed for it. The situation recently hit the radar of the Subcommittee on Oversight & Investigations, which held a hearing in June titled, “Where Have All the Houses Gone? Private Equity, Single Family Rentals, and America’s Neighborhoods.”
During the hearing, Rep. Al Green, the Democratic Chair of the House Financial Services Subcommittee on Oversight and Investigations, said private equity companies have bought up hundreds of thousands of single-family homes and placed them on the rental market, according to a MarketWatch report.
The problem is particularly acute in the Sun Belt markets. For example, the subcommittee memorandum reported: “In the Atlanta metro area, 42.8% of for-sale homes went to institutional investors in the third quarter of 2021, while investors purchased 38.8% of homes in the Phoenix-Glendale-Scottsdale area during the same period.”
Is homeownership off the table for many Americans?
Shad Bogany, a real-estate agent and advocate who testified before the subcommittee, said institutional investors are “creating a generation of renters that will miss out on the benefits of homeownership, the ability to create wealth and stabilize communities,” according to MarketWatch.
Homeowners’ associations are reporting increased crime and disrepair in communities where corporate ownership is significant, and some HOAs are pushing back. For example, they are instituting clauses requiring new owners to live in a home for a specific period before it can be rented, or HOAs are capping the number of rentals in a neighborhood. Investors, however, are crying foul, calling the restrictions an overreach by HOAs.
In fact, the National Rental Home Council (NRHC), the nonprofit trade association representing the single-family rental home industry, expressed another take on the issue in its statement to the subcommittee. The NRHC said that the culprit is simply an undersupply of homes. Freddie Mac has estimated the undersupply at nearly 4 million units. There is no doubt—building new housing is critical—but attention must also be paid to corporate investment practices that greatly reduce the housing supply.
Does Oregon have a chance to avoid this trend?
Rethinking housing policy in Oregon could help. Corporate investors are snatching up property because purchasing a home is generally less expensive than building one. If state and local governments work to reduce red tape and decrease the cost of homebuilding, this will lead to positive results. Regulations that needlessly burden the development of modest housing only increase costs and allow investors to price gouge for existing homes.
And, if there are advantages associated with elements of corporate ownership, policymakers should take note. For example, corporate ownership may lead to a maximized use of residential property. Corporate investors have fiduciaries duties that should motivate investors to fully utilize properties and increase supply (at the end of the day, a fourplex will generate more revenue than a single-family home). Fiduciary duties also drive occupancy—a vacant home does not generate revenue. As this issue develops, policy makers should look to increase affordability, while closely examining the impacts of corporate ownership.