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Housing affordability is a topic on dinner tables across the country, and I bring it up often in my day-to-day work. One aspect that has not been discussed much is the ownership of rental properties by private investment companies and the upward price pressure on single-family rental properties in particular.
From January 2020 to January 2023, rents for two-bedroom single-family homes rose 24% nationwide, but nearly double that amount in many Sunbelt cities. It’s no surprise that nearly one in three U.S. households will be housing cost burdened in 2022, according to the Harvard University Joint Housing Research Center. This equates to 42 million American households. “Cost-burdened” is defined as spending more than one-third of her household income on shelter costs.
Unfortunately, during the 2008 financial crisis, many Americans lost their homes to foreclosure, and individual investors and investment companies began actively purchasing homes. Some private companies were encouraged to buy foreclosed homes to bring stability to the housing market, and many of these private investors were backed by well-known financial institutions.
An example of one of these private companies is Invitation Homes. The company owns more than 80,000 of his properties, many of them in the western United States. There are many similar companies that own tens of thousands of homes across the United States.
As of 2022, these institutions own approximately 700,000 rental homes, representing 5% of single-family rental homes in the United States, according to Yardi Matrix analysts. But what concerns me is that the insurance company MetLife says that by 2030, private investors could own 7.6 million rental homes. 40% or more of a residential or single-family rental. That would give them significant pricing power.
To be fair, some private equity firms are building more single-family homes (for rental purposes) in response to the national housing shortage, but this should not be discounted. The question is whether the need to serve the mandate of profit for individual investors has too much influence on the affordability crisis.
This is also a concern for would-be homeowners, as more expensive single-family rentals drive up overall property values. The average new homeowner in the United States spends more than half of their monthly paycheck on mortgage payments. High mortgage payments are particularly burdensome given the significant inflationary pressures that have accumulated across virtually all products over the past three years.
Housing costs are a very complex issue, with many factors putting upward pressure on prices. Supply shortages, NIMBYism, zoning needs, water constraints, and other factors influence the picture. And increasingly, the role of private investment appears to be a new challenge to the all-encompassing American dream of homeownership.
Tatiana Bailey is executive director of the nonprofit Data-Driven Economic Strategies (ddestrategies.org).
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