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Institutional Investors' Build-To-Rent Homes Skew Market

April 17, 2023

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Institutional housing investors have been buying and developing more single-family homes than ever.

Institutional housing investors have been buying and developing more single-family homes than ever.

It’s a trend that worries some observers because corporate landlords are expected to deliver big profits to their shareholders, which often results in evictions, aggressive rent increases and slacking on maintenance and repairs to the units they own.

Institutional investors in single-family rental housing should be kept in check to curb the danger of making both homeownership and rental unaffordable, real estate investor and fund manager Matthew Bell said.

“I worked for a fund,” Bell said. “I know what goes on behind the scenes. I would say it is not unfair for it to be presented to Congress as predatory.”

Institutional investors have committed more than $60 billion to buy single-family homes over the past year, according to a report by YardiMatrix. A MetLife Investment Management research paper reported that institutions owned about 700,000 single-family rentals in 2022 — about 5% of the 14 million single-family rentals nationally. MetLife forecasts that by 2030, institutions will increase their single-family rental holdings by 7.6 million homes — more than 40% of all single-family rental properties.

Bell estimates the average price of a starter home in the United States is $250,000 to $300,000, up from about $125,000 to $150,000 15 years ago.

“Real estate has been such a positive vehicle for the average American forever,” Bell said.
“They’re erasing the middle part of the asset class. I feel bad for the folks that bought houses in the last two years in bidding wars and paid over asking — those people are upside down.”

Some companies that got into the build-to-rent game when the market was hot are starting to sell communities before values drops and they’re forced to take losses.

“In order to avoid having the homes taken away, they may sell them all at once just for what they owe,” Bell said. “They’ll want to cover the debt and get out so you don’t have that catastrophic consequence.”

Institutional behemoths are permanently shifting the real estate landscape, and Bell said he believes that as funds continue to gobble up housing, the market will never revert to what it was.

“They’re not trying to buy a lot of the middle- to lower-class homes,” he said. “They’re trying to buy all of them. They’re going to force people into upper price points or force them into being renters.”

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