The scarcity of affordable housing in cities across the country has been well documented. From the onset of the pandemic, news headlines pointed to rapidly rising home sale prices and the increase in investors and corporate entities purchasing and renting out single-family homes, leaving current and prospective homebuyers and renters on the outside looking in.
In the early 2000s, what was considered a “starter home” in the Atlanta metro area went for $100,000–$135,000. Today, that same home is fetching upwards of $400,000, pricing out many homebuyers who are of modest economic means. The cost of rent has also skyrocketed, with renters paying top-dollar for housing that doesn’t seem commensurate with the quality or amenities of the unit. While the market is cooling, it is not yet clear how much the trend in investor purchasing will change.
Atlanta isn’t alone in its quest to find solutions to address the affordable housing crisis—solutions that would allow a buyer to purchase a true “starter home” at an affordable price point; that do not displace longtime inhabitants; and that do not force people to pay top-dollar rents for subpar living arrangements. It all makes for a challenging situation for everyday people looking for a place to live in cities throughout the Southeast region.
A new report, “Investor Home Purchases and the Rising Threat to Owners and Renters: Tales from 3 Cities” by Reinvestment Fund and the Nowak Metro Finance Lab at Drexel University, examines housing markets in Jacksonville, FL; Philadelphia, PA; and Richmond, VA, and finds that more than 1 in 5 homes sold go from homeowners to investors. Detailed transaction-level data from Philadelphia show that such sales were most common in neighborhoods with low sale prices, high vacancy and elevated mortgage denial rates, and in areas with higher shares of Black or Hispanic residents. These transactions were also more frequent in those communities within Jacksonville and Richmond where the markets were showing signs of market stress.
The report connects research on detailed transaction histories with Reinvestment Fund’s proprietary Market Value Analyses (MVA), a local stakeholder-informed, data-based, field-validated examination of a city or region’s residential real estate market. The report examines how investment in single-family homes for rental housing that has been lucrative for investors often comes at the expense of homebuyers and tenants. By connecting the traits of home sales to a profile of the markets where those transactions occur, you can understand better what communities are being most impacted by private investors in the residential market. Because of the disproportionate penetration of investors into the more stressed parts of a community’s real estate market, the authors conclude that the situation requires a coordinated and targeted policy response at the federal, state and local levels to help homebuyers compete with investors and to protect renters. The report presents multi-pronged solutions for addressing the increase in investor ownership organized by who is affected and how different levels of government can be involved:
The solutions presented here are not particular to the communities studied in this report. Many metro areas, including Atlanta, are convening state and local entities to address this housing challenge.
In an upcoming U.S. Department of Housing and Urban Development panel discussion moderated by the Office of Policy Development and Research, panelists will discuss institutional investors in the housing markets. “Institutional Investors in Housing” will be held virtually on December 6, from 2 to 4 p.m. The panel will highlight research on this issue and explore actions that various levels of government, along with nonprofits and other mission-driven entities, can take to drive supply to owner-occupants and mission-driven entities. Bruce Katz, Reinvestment Fund’s coauthor in the recent report and founding Director of the Nowak Metro Finance Lab at Drexel University, will be a panelist.
Learn more about our work to support affordable housing.
Originally published in the Saporta Report, December 11, 2022