What began in earnest during the 2008 financial crisis has been exacerbated by COVID-19: large companies, often backed by powerful private equity firms, swept into the single- and multi-family housing market hoping for a big return on their investment. More than a decade later, they’re not only reaping the rewards — they’re increasing their market share.
“They just bought in bulk,” says Oscar Valdés Viera, a research manager at Americans for Financial Reform. “As people were losing their homes, they were taking advantage of that, and they’re doing that again — they’ve expanded during the pandemic.”
According to a report by Americans for Financial Reform, 1.6 million housing units in the U.S. are now owned by private equity, including over 1 million apartment units, 275,000 manufactured home lots, and over 239,000 single-family rental homes.
The report lists 22 private equity-backed companies that hold the 1 million apartment units, which they estimate is 3.6 percent of all apartment units in the country, or about 1 out of every 26 apartment listings. And 12 private equity companies are listed as owners of the manufactured home sites.
“This is just the tip of the iceberg,” says Valdés Viera, a co-author of the report. “There are only four or five private equity companies that are publicly listed that we have access to disclosures [for]. The rest of our findings are based on Facebook data, corporate websites, and some news reports.”
Because of “private equity’s deliberate opacity, these numbers most likely understate private equity ownership,” the report says. “There are a few publicly traded private equity companies—Blackstone, Carlyle, Apollo, KKR—that are subject to SEC rules and regulations including periodic disclosure requirements.”
“By and large the private equity industry thrives by exploiting exemptions and loopholes in securities law and fostered by decades of deregulation in private markets,” the report reads.
Tenants are now less likely than they were before 2008 to have “mom and pop” landlords and are more likely to be dealing with institutional investors, like Blackstone Inc., the Carlyle Group, or KKR as landlords. Along with frequent rent hikes, these tenants often see fees pile up—property administration fee, late fees, various service fees, etc.—and their buildings begin to fall apart.
First-time homebuyers cannot compete. With the supply of housing in the country severely constrained, these companies hold a considerable advantage over low- and middle-income homebuyers, who may only be able to finance through Federal Housing Administration, Department of Veterans Affairs, or U.S. Department of Agriculture mortgages, which take longer to process than a cash offer.
But efforts are underway to level out the playing field, both in terms of acquisitions and operations, from local, state, and federal governments, and even tenants and homeowners themselves.
Making It Easier to Compete
Many of the policy solution discussions on the acquisition side center around trying to reduce the advantage corporate purchasers have by giving other purchasers extra time to come up with the money or assistance in doing so. Finance mechanisms work to get loans and cash into the hands of qualified low- and middle-income buyers, while first look or first right to purchase policies give tenants, nonprofits, or community organizations a window of time when investors are not competing with them.
In California, where the housing market crunch is particularly pronounced, legislation of both types is making its way onto the books.
Two laws specifically address auction sales of distressed properties, or properties that are risk of or have gone through foreclosure. California Senate Bill 1079, which was signed into law in September 2020, modifies the foreclosure auction process to give owner-occupants, tenants, local governments, and housing nonprofits the first right to purchase after a foreclosure sale.
Another bill, the foreclosure intervention housing preservation program, or FIHPP, provides funding in the form of loans or grants for nonprofits, community land trusts, and other eligible buyers to purchase properties available through SB 1079, as well as properties that are delinquent on their mortgage and have gone through a short sale.
“It’s almost impossible for an owner-occupant to buy a property at a foreclosure sale — you can’t use a mortgage,” says David Sanchez, the director of research and development at the National Community Stabilization Trust. “In California, where houses cost a lot of money, people can’t come up with $800,000. So, auctions, I think correctly, are seen by California as a consumer unfriendly way or an owner-occupant unfriendly way of selling a home.”
Both FIHPP and SB 1079, Sanchez says, will “definitely” help level the playing field for buyers at these auction sales.
A report on the foreclosure rates in the country in June has California ranked 11th for highest foreclosure rate, and “of its 14,392,140 housing units, 3,663 went into foreclosure, making California’s foreclosure rate one in every 3,929 households.”
The FIHPP process is still being worked out by California’s Department of Housing and Community Development.
The National Community Stabilization Trust (NCST) runs a platform specifically designed to provide certain purchasers—usually nonprofits—first looks at foreclosed properties. As Freddie Mac’s nonprofit partner, NCST facilitates foreclosure sales in more than 20 markets across the country.
As part of the Biden Housing Supply plan, 50 percent of mortgage notes secured by vacant HUD-held properties were sold to nonprofit organizations in a recent sale, rather than to investors. “This compares to just 10 percent in a typical sale,” the administration said in a release.
The Federal Housing Administration, Fannie Mae, and Freddie Mac recently extended to 30 days the period during which bank-owned properties are made available only to owner-occupants and nonprofit organizations. Large investors are only permitted to submit bids after that period.
The FHA also announced that a program that allows holders of defaulted FHA mortgages to sell them directly to new owners rather than conveying them to HUD now must include a period of 30 days in which buyers can only be owner-occupants, HUD-approved nonprofits, or governmental entities.
Ohio State Sen. Bill Blessing in May introduced a bill that would give individual homebuyers first dibs on foreclosed homes. Under the bill, if an investor were to win a foreclosed home at auction, a 45-day freeze would be triggered on the sale and would jump-start a tiered system of potential buyers being given the opportunity to match the bid, beginning with the people who are renting the home, and then individual buyers and nonprofits.
Unlike during the Great Recession, however, foreclosed properties aren’t a large proportion of homes for sale in the country.
In recognition of that fact, organizations including Housing California, the California Housing Partnership, and Enterprise Community Partners are pushing California Gov. Gavin Newsom to allocate $500 million toward the Community Anti-Displacement & Preservation Program (CAPP), which would allocate state funds to recipients like community land trusts, local housing agencies, and housing departments of local governments to proactively buy properties and protect them as affordable housing.
“We estimate the $500 million would preserve 4,500 units throughout the state,” says Jack Avery, a policy associate at Housing California. “We see this as really kind of step one to addressing the problem.”
Other programs aim to extend the kind of work NCST does beyond foreclosed properties to create first purchase opportunities to jurisdictions and designated nonprofits.
Tenant and community opportunity to purchase acts—TOPA and COPA, respectively—have increased in popularity in city halls and state legislative houses. These laws allow tenants, local public agencies, and mission-driven nonprofits the first opportunity to purchase rental housing properties when owners put those properties up for sale and give them the right to match any offer on those properties made by a third party.
California’s Assembly Bill 2710, which was introduced by Assembly Member Ash Kalra, and New York Senate Bill S3157 would establish a statewide TOPA act. Boston and Somerville, Massachusetts, meanwhile, are trying to get versions of TOPA passed through local home-rule petitions.
Sofia Lopez, the deputy campaign director on housing for the Action Center on Race and the Economy, testified in October 2021 before the Senate Committee on Banking, Housing and Urban Affairs. Lopez called these initiatives “really promising” and the “exact approach we should pursue.”
Avery, of Housing California, says, “The way that we think of the CAPP funding financing program and TOPA/COPA are like sort of two cuts from opposite directions. CAPP puts money in people’s hands. And then the TOPA/COPA . . . gives both tenants of rental family homes and nonprofit entities the first opportunity to purchase. It’s two ways to try and level the playing field.”
Community development financial institutions, or CDFIs, could be one player that helps tilt the balance back toward homeowners. “That’s a big part of the solution to this problem, to create a nonprofit-led delivery system of organizations that can work with families,” says Kristin Siglin, vice president for policy and partnerships at NCST.
HomesteadCS, a nonprofit, HUD-certified housing counseling agency and CDFI in Indiana, for example, is building a program that would assist first-time buyers. The CDFI would purchase a home with cash and allow a buyer to live in the house while they completed the mortgage process.
One obvious solution is for the federal government to build more housing itself and keep that housing out of the hands of financial firms from the beginning. Governments could also step in and purchase existing properties as well.
In December 2021, the Port of Greater Cincinnati Development Authority agreed to pay $14.5 million for 195 properties throughout the county, operating them as rentals with the intention of upgrading and selling them as homes “at as low a price as we can,” the Port Authority’s chief executive officer, Laura Brunner, told The Wall Street Journal.
Some jurisdictions are using the tax system to rein in large real estate companies.
Efforts are underway in San Francisco to get a proposed vacancy tax on the ballot, which would tax property owners who leave their units vacant for more than six months, potentially generating “tens of millions annually for affordable housing and encourage some owners to rent out their empty units,” according to the San Francisco Examiner. Oakland, and Vancouver, British Columbia, have passed similar tax proposals.
Another bill, the California Housing Speculation Act, introduced last spring by California Assembly Member Chris Ward, would tack an additional income tax on profit gain from any property sales that occur within three years of the previous sale to curb investors from flipping properties.
“If somebody’s trying to go in there, fix up a fixer-upper, and then sell it for record profits, that is distorting the market because somebody else could have gone in there, done the same, and kept the home,” Ward told television station CBS8. A flip taxes was proposed several years ago in New York City as well, but it didn’t pass.
Los Angeles, meanwhile, passed a resolution in November 2021 sponsored by Council President Nury Martinez to instruct their chief legislative analyst and the city attorney to report on recommended strategies that LA could use to prevent companies from engaging in speculative practices around affordable single-family housing. Their findings have yet to be reported.
On a bigger scale, some people are suggesting that moderating speculative activity in housing will require changing the unusually favorable tax treatment of real estate at the federal level, that makes, for example, REITs so appealing, as well as reinstating Depression-era controls on mixing banking with other forms of speculative investment.
Homeowners’ associations in North Carolina are setting their own rules to curb private equity’s market power. The Potters Glen Homeowners Association in Charlotte created a rule in 2019 requiring that new homebuyers wait two years before renting their homes out, according to reporting from The Washington Post.
Since the board adopted the rule in 2019, property records show the pace of investor purchases has dropped by more than half.
Similarly, the homeowner association in the Whitehall Village neighborhood in Walkertown, North Carolina, is working to require that new buyers live in a home or leave it vacant for six months before renting it out, according to The Wall Street Journal.
Stronger tenant protections would be a significant move toward reducing the power of big landlords, many sources said. States and localities have the power to set these things, including whether tenants have access to counsel in housing court, if there are limits on raising the rent, when and about what landlord must notify tenants, and for what reasons landlords can evict.
Corporate landlords and institutional investors are far likelier than other owners to evict tenants, according to a study by the Federal Reserve Bank of Atlanta; another study in Atlanta showed these landlords more often use threats of eviction as a routine business practice; and a 2019 study out of Milwaukee “found that maintenance suffered when units passed from individual ownership into the control of limited-liability companies,” according to reporting from The Atlantic.
“We’ve seen a lot the really terrible impacts that corporate landlords have had in the housing market, as we always assumed: the sort of across-the-board evictions, rent raising, lack of conditions and services, turnover—that’s part of that speculation,” says Katie Goldstein, the director of housing campaigns for the Center for Popular Democracy.
“[What] we really see as the way forward . . . to actually reduce speculation is first around tenant protections. [There’s a] real need for there to be universal just cause [for eviction] and rent controls that make it less profitable for owners to be able to buy up a lot of housing with the idea of trying to turn over and raise rents as quickly as possible in order to make a profit,” she says.
States could enable, pass, or strengthen rent control laws; they could create local renter registry laws; and they could establish just cause eviction laws—like what New York State’s Assembly Bill A5573 does. Municipalities could also, says Caroline Nagy of Americans for Financial Reform, limit access to both housing court and zoning variances for landlords with serious code violations or a documented history of tenant harassment.
The California Tenant Protection Act of 2019 both provides for just cause evictions and limits rent increases to no more than 5 percent of the local consumer price index. Single-family homes are exempt, but only if they are not owned by a real estate trust, corporation, or an LLC with at least one corporate member, another attempt to rein in institutional owners.
Implementation and enforcement of existing rules also matters, says Jenny Schuetz, a senior fellow at Brookings Metro and the author of Fixer Upper: How to Repair America’s Broken Housing Systems, who notes that building codes and tenant-landlord laws “are sometimes not uniformly enforced… Lots of places just haven’t put enough resources towards actually providing decent quality, renter experience and renter service,” she says.
One obstacle to holding financial firms accountable is a lack of transparency—for tenants, municipalities, and organizations researching the issue—about who owns the country’s housing stock.
In New York, tenants living in properties owned by Greenbrook Partners say the company has been pushing residents out of their homes through lease-expiration notices. These residents, through their own work, discovered that the company had recently purchased more than 50 apartment buildings “with the exact total obscured by the opaque ownership structures of some of the LLCs used to purchase the properties,” according to a report by Mother Jones.
“Landlords will often own multiple properties through LLCs that aren’t easy to tie back to the same parent entity, and this has been a perennial problem, that cities don’t, in fact, know who their landlords are, and they don’t know if you own 10 different properties under 10 different LLC names—they can’t connect this and say you’re a big landlord in the city,” Schuetz says.
Laws like California’s Assembly Bill AB 1199, or New York’s Senate Bill S.8439 would shine a light on corporate ownership and force the collection of ownership information from limited liability companies and make it accessible to the public in a searchable database. This would not only make tracking the data on private equity ownership much easier but would also give tenants more power to hold their landlords accountable.
“There’s such a web of LLCs, and they don’t actually tell you who really owns that LLC. You can’t even document how big the problem really is,” says Sara Myklebust, research director with Bargaining for the Common Good.
These bills are “forcing the folks that are filing the documents with the government to be clear about who actually owns the property, because people don’t really know.”
In the end, of course, it will likely take a combined effort, at a large scale, to turn the tide of housing being gobbled up by large companies—but attention to the many possible ways to do so is only likely to grow.