Chelsea Jia Feng/BI
When I met the villains of America's housing market a couple of years ago, it wasn't in some ivory tower or on a private island. Instead, the gathering of the country's most-reviled homebuyers took place at a reasonably plush hotel in the desert near Phoenix.
The attendees were employees and executives of single-family-rental companies: a relatively new constellation of private-equity funds, publicly traded firms, and obscure corporations that were spending tens of billions of dollars to scoop up thousands of homes in quaint suburbs and rent them out to families. The companies represented at this annual industry conference weren't household names, but their recent shopping spree had ignited a panic among watchdogs and average homebuyers who feared that deep-pocketed investors were crowding Americans out of the housing market. These investing giants weren't just pouring money into a $4 trillion industry, the argument went — they were launching an assault on the American dream.
At a party on the last night of the conference, the rowdiest attendees bounced gleefully as a local cover band hammered out the antiestablishment anthem "Killing in the Name" by Rage Against the Machine. Others hung out on the periphery, talking deals or schmoozing potential business partners. There were lots of reasons to celebrate: Interest rates were low, making it cheap to snap up more homes; rents were surging, which meant owners could pad their profits; and the business model seemed to hold nearly limitless potential. I chatted with a pair of investment managers from Chicago, who lamented that they had $3 billion to dedicate to single-family rentals but couldn't find somewhere to put it — there simply weren't enough homes available. With so much money sloshing around, I thought, how could a first-time homebuyer possibly stand a chance?
Two years later, the hostile takeover of America's housing market by the cash-rich villains I met in the desert hasn't unfolded the way many feared. The percentage of American households who own their home has actually been on the rise since the start of the pandemic, climbing to 66% at the end of the third quarter. That's nearly a full percentage-point increase from the end of 2019; there are roughly 6.6 million more owner-occupied housing units today than there were four years ago. Meanwhile, Wall Street's foray into the housing market has slowed substantially since last spring: Increased borrowing costs, unattractive home prices, and slowing rent growth have made buying up homes a tougher proposition for investors. In recent quarters, several of the largest publicly traded SFR companies have even been selling more homes than they've been buying.
The tale of the housing market over the past few years, in which big Wall Street firms and greedy Airbnb investors elbowed out first-time buyers and drove up home prices, is appealing. It's nice and tidy, with a clear delineation between good guys and bad guys. But it also misses the mark. I don't say that to minimize the very real challenges in the housing market. But if we want to assign blame, we need to look beyond cash-rich investors and examine all the other ways in which homebuilders, lawmakers, and the NIMBYs who block new development have failed those seeking the American dream.
The origin of the corporate vulture
The presence of big investors in the housing market is a relatively new phenomenon. In the aftermath of the Great Recession, the foreclosure crisis triggered a steep drop in home prices and turned single-family homes into distressed assets that could be scooped up on the cheap, revamped, and turned into profit-generating machines. There was money to be made, so Wall Street-backed firms started assembling vast portfolios of single-family homes. The corporate buying helped stabilize home prices, but it also contributed to a sharp drop in America's homeownership rate. By 2014 it had fallen to 64%, a roughly 5-percentage-point drop from 2006. A paper published by the Federal Reserve Bank of Philadelphia estimated that during that time, corporate investors were responsible for 75% of the decline in homeownership.
"Right off the bat, institutional investors got painted with that negative aura of coming in and taking advantage of people's misfortunes to buy these properties at bargain prices," Rick Sharga, the founder and CEO of the market-intelligence firm CJ Patrick Company, told me. "That's really never gone away."
The finance crowd made a big splash after the housing crash, but by the end of 2019 things had started to normalize. The homeownership rate had rebounded to 65%, from a low of 63% in 2016, and the percentage of homes being bought by investors was moderating. Then the pandemic struck. The shutdowns of 2020 created a perfect storm for the housing market — and supercharged the clash between Wall Street and regular homebuyers. The closure of downtown offices and stores in 2020 made single-family homes look like the best bet for big-time real-estate investors. At the same time, regular buyers were fiercely chasing homes, motivated by record-low mortgage rates, demographic shifts, and dreams of more space. The competing desires meant Wall Street and Main Street were going head-to-head over homes like never before — and for a while, the deep-pocketed funds seemed to be winning. Investors of all kinds, including both big firms and small-time landlords, swarmed the market, eventually accounting for more than 20% of all home purchases in early 2022, according to Redfin.
The showdown was exacerbated in places with lots of the types of homes investors love to chase. They tend to favor entry-level homes in the Sun Belt, a region in the southern half of the US where there's plenty of in-migration and lots of cookie-cutter houses that property managers prefer. An analysis by Parcl Labs, a real-estate data-analytics company, found that investors that owned more than 1,000 single-family homes had concentrated 37% of their holdings in just six markets, including Dallas, Phoenix, and Charlotte, North Carolina. A whopping 13.3% of the homes owned by these big investors are in Atlanta, with a third of their properties there clustered in just 11 ZIP codes, Parcl Labs found. In those hotspots, large landlords own more than 10% of single-family homes. Regular homebuyers, it turns out, are also clamoring for homes in these areas — nine of the nation's 15 fastest-growing cities in 2022 were in the South. And since a huge chunk of the buyers today are just getting started as homeowners, they're also competing for the same kinds of starter homes that investors have in their sights. Given the attention these markets received during the pandemic, it's no wonder that the battle between Wall Street and Main Street became the dominant story of COVID-era homebuying. But as the country leaves the peak of the pandemic in the rearview, it's becoming clear that Main Street has been holding its own all along.
Main Street fights back
The most obvious sign that regular buyers are battling back is the country's nearly historic homeownership rate. The percentage of Americans who own a home is now higher than it was in the 1960s, 1970s, or 1980s. In fact, owning a home hasn't been this popular since the few years surrounding the Great Recession. And the gains in homeownership over the past few years have been spread across ethnicities and regions.
First-time buyers, who've had an especially tough go, accounted for 32% of home purchases last year, up from 26% the year prior, according to the National Association of Realtors. That's still below the 38% annual average since 1981, but it's closer to the rate right before the pandemic, when about 33% of buyers were first-timers. Census data indicates that despite all their generational woes, younger households (defined as those under 44) were the most likely to move from renting to owning during the pandemic. Typical homebuyers have been far outpacing investors for a while now. An analysis of census data by Axios found that the number of owner-occupied homes in the US had grown by 11.1 million since 2016, while the stock of investor-owned rentals had increased by 275,000. These gains, Sharga said, are a clear sign that regular Americans are not being boxed out by private-equity funds and big investors.
"If Wall Street was really gobbling up Main Street," Sharga told me, "we would see homeownership rates go down."
On the flip side, Wall Street buying activity has significantly cooled. Investor purchases were down by 35% year over year in the second quarter, according to Redfin, with the total number of homes sold to investors hitting the lowest level of any July-September stretch in seven years. In the formerly red-hot Sun Belt metros, investor purchases were down by more than 40% from the same quarter last year. In all, investors bought roughly 16% of the homes that sold in the quarter, well below the pandemic-era peak of more than 20%. There are a few reasons for this shift: The Federal Reserve's interest-rate hikes have made it harder to finance deals, while stubbornly high home prices mean big-time buyers can't get as much bang for their buck. Despite their reputation, "mega investors" that own more than 1,000 properties have pulled back the most, accounting for just 8% of purchases made by investors in the first quarter of 2023, compared with 17% in June 2022, according to CoreLogic. Invitation Homes, the largest owner of single-family rentals, with more than 80,000 homes, was a net seller from the third quarter of 2022 to the second quarter of 2023. Wall Street landlords have also been increasingly selling off homes to regular people, a Business Insider analysis found.
The portion of homes owned by SFR companies remains small. Parcl Labs found in October that investors with at least 10 units in their portfolio owned roughly 3.4% of all single-family homes in the country. Big investors with at least 1,000 units — a group that includes major companies like AMH Homes, Invitation Homes, Tricon Residential, and Pretium — owned just 0.73%.
Still circling
While average homebuyers have staged a comeback over the past three years, Wall Street isn't ready to jump out of the housing market altogether. Zelman & Associates, a firm providing housing research, advisory services, and data analytics, estimated at the end of 2022 that institutional investors had earmarked as much as $110 billion to purchase or build single-family rentals in the coming years. Many single-family-rental owners are building entire communities of new homes to then lease to households, a strategy widely viewed as the next frontier for the industry.
Investors, particularly big investors, have always been painted as the villain in these scenarios. The reality has never caught up to the image.
And that rosy homeownership data? It may not be as bright of a signal as it seems, according to an independent analysis by John Voorheis, who also serves as the principal economist in the Center for Economic Studies at the Census Bureau. Given the well-documented obstacles for first-time buyers in the wake of the Great Recession, it's fair to wonder how the homeownership rate is so high compared with past decades. The problem, Voorheis found, is that the census tracks only the number of heads of households who are homeowners, which is very different from the percentage of total adults who own their home. A household is any collection of people living together — a married couple living in a single-family home is one household, and so is a group of four roommates in an apartment. But using the census' method, the homeownership rate for those two households is 50%, even though only two of the six people are homeowners. Voorheis found that homeownership rates for the entire adult population had generally been trending downward since the 1970s.
"The fearmongering journalists are right and the boomer chart guys are wrong: things really do suck," Voorheis concluded in a post on X, formerly known as Twitter.
But even this gloomier picture contains a spot of good news for regular buyers: The homeownership rate may not be historically high, based on Voorheis' data, but it has been on the rise since 2016, sustaining its climb even during the pandemic. Investors may have been buying lots of homes in recent years, but regular people have been buying way more.
Don't blame investors for the housing market's woes
Two things can be true at once: Yes, buying a home today sucks, but the problem isn't that a shadowy cabal of Wall Street landlords is pulling all the strings. The challenges facing homebuyers have a lot more to do with supply shortages and demographic trends that have been years, even decades, in the making. Despite corporate buyers' dastardly reputation, a study by economists at Freddie Mac found that cheap loans, a tidal wave of first-time buyers, a rise in remote workers moving to greener pastures, and a severe undersupply of new homes did a lot more to raise home prices than Wall Street's gobbling up listings.
A horde of millennials are angling for homes, while baby boomers are staying in their homes longer than previous generations did. There's simply more competition today than there was a couple of decades ago — and fewer new homes to keep up with the demand. At a local level, opponents of new development continue to block the kinds of dense new housing that could provide more options for all kinds of families. Ultimately, focusing on the more cinematic clashes with mega landlords distracts from the duller but more dire structural issues that are really holding homebuyers back.
"Investors, particularly big investors, have always been painted as the villain in these scenarios," Sharga told me. "The reality has never caught up to the image."
James Rodriguez is a senior reporter on Insider's Discourse team.