Compete with companies for residential real estate? | Tonkon Torp LLP
Between a booming housing market and rising interest rates, the outlook is bleak for future homeowners in our region. For the most part, however, Oregon buyers have avoided a significant hurdle that has plagued other markets: competition with corporate investors for a limited supply of residential housing.
Will Oregon experience this trend soon?
It is probable. Washington has seen some of this activity and California is a hotbed. The situation recently hit the radar of the Oversight and Investigations Subcommittee, which held a hearing in June titled, “Where have all the homes gone? Private Equity, Single Family Rentals and US Neighborhoods.
During the hearing, Rep. Al Green, Democratic chairman of the House Financial Services Subcommittee on Oversight and Investigations, said private equity firms had purchased hundreds of thousands of single-family homes and had put them on the rental market, according to a MarketWatch report.
The problem is particularly acute in Sun Belt markets. For example, the subcommittee’s memorandum reported, “In Metro Atlanta, 42.8% of homes for sale went to institutional investors in Q3 2021, while investors bought 38.8% of homes in the Phoenix-Glendale-Scottsdale area during the same period. »
Is home ownership 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 who will be deprived of the benefits of home ownership, the ability to create wealth and stabilize communities,” according to MarketWatch.
Homeowners Associations report an increase in crime and decay in communities where business ownership is significant, and some HOAs are pushing back. For example, they institute clauses requiring new homeowners to live in a home for a specific period of time before they can rent it out, or HOAs cap the number of rentals in a neighborhood. Investors, however, are crying foul, calling the HOAs overreaching restrictions.
In fact, the National Rental Home Council (NRHC), the nonprofit trade association representing the single-family home rental industry, expressed a different view on the matter in its statement to the subcommittee. The NRHC said the culprit is simply a lack of housing. Freddie Mac estimated the undersupply at nearly 4 million units. There is no doubt that the construction of new housing is essential, but attention must also be paid to corporate investment practices that sharply reduce the supply of housing.
Does Oregon have a chance of avoiding this trend?
Rethinking housing policy in Oregon could help. Corporate investors are snapping up real estate because buying a house usually costs less than building one. If state and local governments strive to reduce bureaucracy and decrease the cost of residential construction, it will lead to positive results. Regulations that unnecessarily burden modest housing development only increase costs and allow investors to raise the prices of existing homes.
And, if there are benefits associated with corporate ownership elements, policymakers should take note. For example, business ownership can lead to maximized use of residential property. Corporate investors have fiduciary obligations that should motivate investors to fully utilize properties and increase supply (ultimately a quadruplex will generate more revenue than a single family home). Fiduciary duties also determine occupancy – a vacant house does not generate income. As this problem grows, policymakers should seek to increase affordability, while looking closely at the impacts of business ownership.