Jon Cobb was ready to buy his piece of the American dream.
The Navy veteran moved into a 1,439 SF rental house in Powder Springs, Georgia, in 2019. Shortly thereafter, Cobb’s landlord asked if he wanted to buy the place for $175K. Cobb, an engineer at Georgia State University, spent the majority of his adult life saving toward one day becoming a homeowner and was finally ready to take that step.
But FirstKey Homes, one of the largest single-family rental investors in the country, bought the house from under him. Three years later, the value of the home has doubled, but Cobb, 47, said FirstKey has yet to fix his house’s rotting patio, faulty toilet pump and cracked foundation, among other issues.
“The goal of homeownership has been pushed out of reach for me,” he said. “A guy who has served his country, who has done everything I’m supposed to do — work hard, have a full-time job and an educated career, but they don’t care. [FirstKey Homes is] too rich, and they don’t care.”
Cobb is far from alone. In recent years, large corporations have taken a chunk out of the inventory of for-sale homes in the United States — investors bought more than 18% of all homes sold nationwide during the last three months of 2021, a record high, according to Redfin. Some developers that have been in the business of building up the supply of starter homes are now selling some directly to investors instead.
SFR investors’ activity is driving down the number of owner-occupied houses and helping to drive up the cost, putting the dream of homeownership on pause for many American families.
Home prices rose by 10.4% in 2020, then by almost 20% in 2021, the biggest increase in 34 years of data, according to the S&P CoreLogic Case-Shiller U.S. National Home Price Index. The median home price is now more than $400K, while the median family income was less than $80K last year.
Today, institutional groups own just 3%-4% of single-family rentals, according to JLL, but that share is expected to grow as Wall Street commits billions of dollars to the market. In 2021, at least $45B was invested into the SFR space by institutional investors, managers, REITs and investment banks, up from $3B in 2020, according to John Burns Real Estate Consulting.
Those in the build-to-rent and SFR space say they are providing much-needed housing to a growing demographic of people who rent either by necessity or by choice. The occupancy rate of SFRs is at its highest point in 20 years, according to JLL, and those who live in rental homes are staying longer as mortgage rates reach 5%.
“There are 860,000 more rental households in this country today than there were two years ago,” said David Howard, executive director of the National Rental Home Council. “That demand has to be met somehow, whether it’s multifamily or single-family rental.”
But in the areas that have seen the majority of investor activity — Sun Belt states like Georgia, Texas, Tennessee and Arizona — local community groups and politicians are trying to push back against the wave of Wall Street-backed buyers and developers looking to build rental homes in traditionally for-sale areas. Even Congress is investigating the issue.
Concerns over institutional ownership start with the exacerbation of the housing affordability crisis, but also bleed into questions about maintenance and responsiveness. Leaders of neighborhoods popular with SFR investors say corporate landlords contribute less to their communities, and some have gone as far as to impose limitations on how many for-rent homes can be present within a given area.
Even developers of new BTR communities — who are adding homes to the supply — told Bisnow they face a growing current of pushback in the form of NIMBYism. Despite being low-density, many of the stigmas associated with traditional apartments are applied to BTR, preventing a large number of projects from ever breaking ground.
“Rental is a dirty word in almost every jurisdiction across the country,” said Josh Hartmann, CEO of BTR developer NexMetro Communities. “We come in at a disadvantage, and it’s getting worse.”
Regardless of product type, a throughline of criticism remains that a growing number of houses are owned by corporations, rather than individuals, and that is contributing to a scenario where fewer people can afford to buy a home.
“They can't invest in their future,” said Dawn Bauman, senior vice president of government and public affairs for the Community Associations Institute, an umbrella organization for neighborhood groups. “And they can't invest in the American dream.”
Tilting The Market
Rental homes are far from a new phenomenon, but the profile of their ownership has shifted, in large part because of the Global Financial Crisis. As millions of homes were foreclosed on across the country, Wall Street firms bought them up in bulk. By 2016, institutional investors had acquired more than 200,000 of these properties, according to research by the University of Texas at Dallas.
SFR investors and BTR developers argue the psychological impact of the housing crash is as much responsible for the drop in homeownership rate as the financial fallout. Wan Bridge has rapidly snatched up land around Houston and other Texas cities since 2016, and its CEO, Ting Qiao, argues many Americans are more skeptical of owning a home after the wave of foreclosures.
Qiao also said single-family rentals address an important, previously unserved market niche for Americans without ready cash for a hefty down payment or the ability to qualify for a large loan. He compared owning versus renting a home to owning versus leasing a car.
"Originally, if you want to buy a car, you need to pay in cash," Qiao said. “Recently, in the past 10 years or 15 years, there is the option called a lease. You can lease a car, which made the car more affordable. Of course, the financial institution still owned the car; you pay the lease to them, and then … you have the right to use a car."
Like the automotive industry, he said, Wan Bridge and other BTR developers are simply providing an option, and a badly needed one at that.
Tricon Residential Managing Director Andy Carmody said the nation is starving for more housing, and investors will flock to where the demand lies.
Investors bought roughly 80,000 U.S. homes worth a total of $50B in Q4 2021, a 44% rise over the year before, data released in February by Redfin showed. Among those investors was Tricon, which spent $5B on 18,000 Texas houses.
"There's a shortage of housing for all types of families — for rent, apartments, what have you,” Carmody said. “The country has not built enough housing in aggregate, particularly in these high-growth markets over the last 10 years. The shortage that affects families trying to buy homes also affects families trying to rent homes. We view ourselves as a relatively affordable opportunity for a family to rent a well-located, safe and well-maintained single-family home."
The definition of “relatively affordable” can vary.
Tricon said its Houston-area rents hover around $1,473 a month while Qiao cited rents at Wan Bridge of between $2,200 and $2,800 a month, calling it more affordable than an average mortgage, especially after taxes and down payments. The average Texas mortgage as of June 6 was $1,549, according to Rocket Mortgage, based on data from the National Association of Realtors — a figure that includes insurance, property taxes and other fees.
Regardless of monthly costs, investors like Carmody say the criticism they face over their impact on the housing isn't supported by data.
"We understand that Americans are upset that housing costs too much, that people are frustrated. We are, too,” Carmody said. “We would like to buy and provide more to families who want to rent them from us. We understand. But we think the [finger] pointing on single-family rentals is misplaced, because the numbers simply don't add up.”
When the House Committee on Financial Services held a hearing last week on investors in the housing market, it gathered data on five companies — Invitation Homes, Amherst Residential, Progress Residential, American Homes for Rent and FirstKey Homes — that combined owned more than 280,000 homes at the end of Q3 2021.
These companies bought 111,852 houses over the previous five years and sold 35,527, according to the committee’s report. Forty percent of residents in the top 10 ZIP codes where these homes were bought are Black, and the home values were roughly $30K below the national average.
“This predatory purchasing contributes to our nation’s shortage of affordable housing and exacerbates the racial wealth gap,” Rep. Al Green, a Democrat from Texas, said at the hearing.
The House committee called the hearing to address the housing crisis, and Democrats on the dais laid the blame at the feet of private equity-backed investors.
But developers and investors who spoke to Bisnow dismissed claims that their business model is locking people out of what has traditionally been a way for Americans, especially low-income people and people of color, to build wealth.
“I don’t think it discourages people. I think [tenants] are making a choice,” said Hartmann, NexMetro’s CEO. “Does it take people off the traditional track of homeownership? You could argue that’s true, although it’s not like rentership is a novel thing.”
SFR investors, and housing experts in general, point to the fact that the nation hasn’t produced enough homes of any type since the Great Recession as the reason for the drastic affordable-home shortage. By some estimates, the U.S. housing supply is at least 3 million units behind the demand.
A lack of construction is a huge reason behind the relative disappearance of entry-level homes from the market, according to Freddie Mac research. But into the void have stepped SFR investors, snapping up homes with all-cash offers, or even sending unsolicited text messages to homeowners to try to induce them to sell, practices that didn’t exist at scale before the housing crash.
Some for-sale developers have also adopted the strategy of selling their lowest-cost product straight to investors. Douglas Yearley, the CEO of Toll Brothers, one of the country's 10 largest homebuilders, said on a May 25 earnings call the builder planned to sell more homes directly to SFR investors moving forward.
“There may also be some opportunities … where we sell some homes out of the gate to SFR operators,” Yearley said. “That tends to be our lower-priced locations. I know a lot of the other builders are doing that.”
Developers of BTR communities and SFR investors argue that tilting the market toward renter-occupied housing is merely a response to consumer demand.
“A lot of them don’t want to buy, they don’t want a 30-year mortgage risk,” said Todd Wood, CEO of Phoenix-based Christopher Todd Communities. “Deliver the people what they are asking for — they’re asking for this. They’re not asking for more debt or more risk. They’re asking for flexibility, options.”
Homebuilder Alex Kamkar was elected to the city council of Pearland, Texas, outside of Houston, in 2020, and has vowed to never build a single BTR home. He argues the industry is squeezing Americans out of the ability to own homes and tainting build-to-own master-planned communities like his by association.
"You [become] hopelessly addicted to being a renter because you don't have the ability to save for a down payment for the cost of a house that is rising and rising rapidly … It is 10%, 15%, 20% raises year-over-year, and they are actively touting this," said Kamkar, the managing shareholder of Bold Fox Development.
"They are telling their investors, 'Look at how much money we can make because these guys are screwed. They have no other options.’ What we have to decide as an industry of homebuilders and developers is, do we want to promote the crack dealers of housing, or do we want to promote American families? Simple as that.”
Brian Mitts, the chief financial officer of NexPoint, an SFR investment group that owns 23,000 houses across 22 markets in the Sun Belt and Midwest, has heard all the criticisms, and admits some have validity.
“There are definitely situations where the institutional landlord is not investing properly in the asset or the community. I can’t defend the entire industry; there are bad actors,” Mitts said. “There are some of us that are trying to do it well, admittedly for a profit motive.”
'The Neighbors Don't Like It'
While the build-to-rent industry operates fundamentally differently from SFR investment — the latter acquires existing houses, the former builds new ones — it has still been the target of strong, local pushback.
Developers trying to build rental homes from the ground up have found many communities are going to the mattresses to stop them, even as they acknowledge the need for more housing of all types — and the lack of new product plays more into deep-pocketed investors’ hands.
More than a third of Phoenix-based NexMetro’s planned BTR developments die before they get to the planning and zoning stage, Hartmann told Bisnow. He added that some jurisdictions even tell developers not to bother trying to build there.
“Either the neighbors don’t like it because they hear rental and they don’t want those people in their neighborhood, or the jurisdictions don’t like it because they have a bias against rentals and they think it’s a bad thing,” Hartmann said.
Tricon’s Carmody said about 10% of his firm's proposed communities are shut down before ever getting a hearing. That wariness of projects being killed at the planning and development stage has made Tricon choosier about where to start developments.
Last year, developers unleashed more than 6,700 build-to-rent houses in the U.S. That number is expected to more than double to 14,000 this year, according to RentCafé. But it would be much higher if not for considerable pushback at the local level, developers say.
But some BTR developments have replaced projects that local officials had hoped would build more opportunities for homeownership. In Nashville, American Homes 4 Rent sparked local outcry when it announced a plan to develop 50 BTR houses, the local Fox affiliate reported.
The development complied with city zoning, but it had been entitled by a for-sale homebuilder, then sold to the California-based build-to-rent REIT, which Metropolitan Nashville Council Member Tanaka Vercher called “a bait-and-switch” to neighbors.
“Single-family zoning, to any person you may ask, implies homeownership,” Vercher told Bisnow. “They are exploiting that zoning code. They're building portfolios. They're not building communities.”
Vercher is planning to propose an overlay district that will require single-family developers to reappear before the county commission for additional approvals if they intend to market the homes to renters instead of buyers. She said her concerns about BTR go beyond how they get through current zoning laws.
She said its builders perpetuate a kind of socioeconomic segregation from traditional homeowners by forcing lower-income households to stay in the renter pool. BTR neighborhoods also force local communities to deal with high renter turnover and an increase in school transience, particularly in hot markets where landlords are able to increase rents year after year, she said.
“What it does is it exacerbates the affordability crisis,” Vercher said. “At the end of the day, these guys have really transformed the American dream. We're losing neighborhoods. We're losing our identity.”
'Changing The Dynamics'
In Heron Bay, a 1,316-home golf course community in the southern Atlanta suburb of Locust Grove, the rise of institutionally owned single-family rental homes is seen as a threat to the vision its residents bought into.
The Heron Bay Homeowners Association was formed when the community’s developer turned over the upkeep of the community to the owners, and one of the association’s first orders of business was to assess how many homes were occupied by renters. It found a fifth of the homes were being rented out, and seven of the homes sold this year have traded to institutional investors.
“They’re not treating the property as well as the person who owns the property,” said Oliver Hawkins, the association’s president. “It's almost as easy as black and white. You can see it right away.”
Howard, who heads the lobbying group for SFR owners, disputed generalizations about the quality of renter-occupied housing, likening it to discrimination. NRHC members paid more than $500M to HOAs in 2021, he added.
“To make some kind of blanket assertion that renters don’t maintain their homes as well as owners, frankly, is not helpful and almost offensive to the 23 million renter households in this country,” he said.
Investors are often better equipped financially to make investments in the homes they own than mom-and-pop buyers, Mitts said. He said NexPoint buys properties that need an average of $25K-$30K in improvements, a sum entry-level buyers would have a harder time spending. He added that as long as the housing market is at record highs, renters shouldn’t be shut out from single-family homes.
“The fact that they are renters means that they don’t really have the choice of buying a home, for whatever reason, and so they deserve and need a safe, clean functional place for them and their family,” he said.
Many HOAs, however, believe institutional ownership does more harm than good, which is why groups like Heron Bay are mulling changes to their bylaws, including limiting the total number of rentals to 10% or fewer of all units and doubling HOA fees for rental owners.
“I would like to push for no, zero tolerance from leasing out your home,” Hawkins said. “But that's pie in the sky.”
Heron Bay isn’t alone. Across the nation, neighborhood groups, homeowners associations, town councilors and mayors are looking for more ways to push back on the influx of rentals and the impact institutional ownership of housing will have on their communities.
Some are looking to limit renting overall or establish a process by which they can approve tenants to rent homes in their neighborhoods.
Of the more than 1,000 HOA amendments drafted since 2019 among organizations in 21 counties in Florida, Arizona, North Carolina and Texas, some 30% involve lease and usage restrictions, including on short- and long-term rentals, according to data real estate tech firm InspectHOA provided to The Wall Street Journal. That number is up from 21% from 2016 to 2018.
HOAs’ biggest concerns, according to a Foundation of Community Association Research survey of CAI’s members, involve tenants not knowing or following community covenants, investors not maintaining homes to community standards and renters mistakenly turning to the homeowner associations to make housing repairs and upkeep.
But there is a growing tension brewing among members that increased institutional ownership will alter the fabric of their neighborhoods, said Bauman, the foundation's executive director. When a homeowner invests in a house, the expectation is her neighbors will also be homeowners.
“The corporate rental companies are purchasing a significant number of homes within a community and changing the dynamics from a homeownership community to a rental community,” Bauman said.
Some local governments are also trying to restrict institutional homeownership at a broader level, but they have nearly no power to do so, said Vincent Yao, director of the Real Estate Center at the J. Mack Robinson College of Business at Georgia State University.
“I think it's very hard to regulate at the municipality level,” Yao said.
The Atlanta region is the most active in the country for investors — a third of all homes sold in the first quarter were bought by investors, according to Redfin, a rate that actually declined from the end of 2021. But municipal and county leaders say there is little they can do to stop it.
“I’m kind of worried when you have a bunch of owners who are not present and very large portfolios that are dispersed, it will lead to disinvestment,” Doraville Mayor Joseph Geierman told Bisnow.
In Doraville, 15 miles north of Downtown Atlanta, renter households already make up 52% of the city’s housing stock, well above the 35.9% national average, according to the U.S. Census Bureau. Atlanta Mayor Andre Dickens has proposed restrictions on investor home purchases akin to the Community Reinvestment Act, after investors snapped up most of the for-sale homes in the working-class Black neighborhood of Grove Park where Microsoft bought 90 acres for a future campus earlier this year, Bloomberg reported.
“I do think that the pressure from these companies to want to purchase homes has ratcheted up in the last couple of years,” Geierman said. “I don't think that there's anything we can do per state law.”
The market forces pushing more homes into institutional ownership aren’t likely to dissipate anytime soon, but congressional scrutiny, local concerns and community pushback are mounting.
For his part, Cobb, the Navy vet who saw his home snapped up by FirstKey Homes before he could buy it himself, is pursuing legal action against his new landlord for doing repair work without permits — something that he didn’t have to worry about when he lived in a rental home owned by someone he knew.
“I feel like a normal man, working a normal job, being bullied by these rich fat cats who don’t care,” Cobb said. “Because none of what happens to me affects them, ever.”