On July 12, the House Committee on Ways and Means held a hearing, “Nowhere to Live: Profits, Disinvestment, and The American Housing Crisis.” The wide-ranging hearing included a deep-dive into the impacts of institutional investors in single family homes (one to four unit homes).

Committee Chair Richard Neal (D-MA) described the increase in the number of institutional, profit-motived investors in single family homes as “unacceptable” and counter to the Committee’s work to expand the supply of affordable housing through the Low Income Housing Tax Credit and other programs.

Dr. Elora Lee Raymond, Urban Planner and Assistant Professor in the School of City and Regional Planning in the College of Design at Georgia Tech, was a witness at the hearing. Dr. Raymond has done extensive research on the household and neighborhood consequences of institutional investors in single family housing, with a particular focus on disparate impacts to racial and ethnic minorities.

Buying Up Homes in Non-White Neighborhoods

Institutional investor purchases crowd out homeownership and reduce housing affordability with a targeted focus on non-White neighborhoods, Dr. Raymond testified. Typically, institutional investors target their purchases in moderate-income neighborhoods, crowding out first-time homebuyers and moderate-income families purchasing in lower price tiers. “In my recent report on [institutional single family rentals] in Atlanta, Miami and Tampa, we found that institutional investors bought 25% of all single-family homes. On average, these firms purchased in neighborhoods where 84% of residents are non-White,” Dr. Raymond said. “Similarly, in a 40-metro study, Redfin and the Washington Post found that SFR investors comprised 30% of all home purchases in majority Black zip codes in 2021. The National Association of Realtors found that areas where ISFRs bought more than 30% of homes in 2021 had twice as many Black households than areas with a lower institutional buyer presence.”

Despite a pre-pandemic history of paying less for homes than owner-occupiers, by 2021 institutional investors were paying at least as much for homes, and often more, than potential owner-occupier homebuyers. “In 2021, we saw investors outbid homeowners at market rates, purchasing 1 in 7 of all single-family homes and increasing their market share of purchases in predominantly Black neighborhoods by 20%. Institutional investors were particularly focused on Southern cities. In Texas, institutional investors 43% of all homes sold in Dallas County, 28% of all homes in the state of Texas, and paid 1.7 times more than the median sales price statewide,” Dr. Raymond testified

Outcompeting Other Offers

These institutional investors are able to outcompete homeowners for homes at every stage of the homebuying process by making all cash offers, having access to cheap debt, and / or waiving inspections or buying as-is, Dr. Raymond testified. “Finally, some investors are associated with predatory forms of purchase, aggressively and sometimes duplicitously soliciting homeowners to sell homes even before they are placed on the open market,” Dr. Raymond said.

Detrimental to Renters

In addition to crowding out potential homeowners, Dr. Raymond testified that “research has made it increasingly clear that institutional investors are not providing a good rental alternative to homeownership. The provision of affordable, stable rental housing is fundamental to household and neighborhood wellbeing. Yet, far from being good landlords, institutional investors have serious detrimental effects on tenants, homeowners, and the neighborhoods where they invest. Research has found that while institutional SFR provides great returns for investors, they have high eviction rates, poor maintenance, high hidden fees, and aggressive rent increases.”

In research she conducted for the Federal Reserve Bank of Atlanta on the eviction practices of institutional single-family investors, Dr. Raymond found that renting from an institutional investor was the biggest predictor of an eviction and institutional investors were 68% more likely to file for eviction than other landlords.

High Market Shares Let Investors Drive Up Housing Costs

Dr. Raymond also testified that high purchase market shares of single family homes raise red flags about the pricing power of institutional single family investors in urban submarkets. “Policymakers may need to determine whether firms have the market power to set sale price of homes in neighborhoods where they have existing assets used as collateral for debt. Additionally, policymakers need to examine firms’ market share of homes for rent to confirm whether firms have the market power to set rents in areas where they have a higher market share; or if the overall market share of institutional investors is increasing rents due to coordinating mechanisms like the use of common property management firms,” Dr. Raymond testified. “High market share in a given submarket confers market power and the ability to influence not just sale prices, but to increase rents.”

In sum, there are serious disparate impact issues that the proliferation of institutional investors bring. Institutional single family investors purchase primarily in moderate income, homeowning communities of color. These purchases crowd out homeownership, increase evictions, drive gentrification and displacement, and reduce affordability.

Read witness testimony and watch a recording of the hearing here.