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Mitchell Parsons’ job has become more challenging since the pandemic upended the U.S. housing market.
As director of operations for Midtown Atlanta Assistance Center, Parsons helps oversee a team that provides assistance to low-income Atlantans through job support, food pantries, and rental and utility assistance.
While most of the tenants to whom Parsons provided rental assistance in the pre-pandemic years lived in properties owned by local landlords, homes masked by anonymous LLCs and managed by large property management companies under labyrinthine rules have struggled in the COVID-19 pandemic. The boom began during the period, as mortgage executives told Inman, interest rates dropped and large corporate owners with capital acquired investment properties across the country.
Parsons said that when dealing with property management companies like Progress Residential and Invitation Homes, he and his team now feel like they are dealing with a complex bureaucracy rather than property managers and landlords.
“One problem I often run into is that companies are so big that you call the switchboard number and you can’t actually talk to the people who are doing the work,” Parsons told Inman. “Then there are people who represent properties in my area, people who provide rental assistance, and people who handle evictions. When you just say, ‘Who can I send a check to? ” Sometimes it becomes a navigation nightmare.
Starting at least in 2021, what CoreLogic calls “large” investors with 1,000 or more homes bought about 3% of homes for sale – up from about 1% in previous years — Housing advocates have sounded the alarm about the accelerated pace of corporate buying and the threat to renters, especially in warmer climates like Atlanta and Phoenix where housing is relatively affordable.
In Atlanta, an estimated 42.8% of homes sold in 2021 went to institutional and small investors, while in Phoenix 38.8% of home sales that same year went to investors, with both renters and homeowners affected, according to CoreLogic. Crackdown experts told Inman this was due to increased violations, rising rents and more than $1 billion in equity losses.
Now, this growing trend has drawn attention on Capitol Hill, with Oregon Senator Jeff Merkley, a Democrat, introducing proposed legislation that would pass a federal tax of $20,000 per household per year. tax to combat large investment funds gobbling up the nation’s housing stock. The so-called Ending Hedge Fund Control of American Housing Act was introduced in December and referred to the Finance Committee, but has not yet made any further progress or been voted on. As of now, the bill doesn’t appear to have passed, but that could change soon.
Rep. Adam Smith of Washington, also a Democrat, has introduced a companion bill in the House.
“Hedge funds are driving up renters by squeezing out hard-working families and acquiring vast swaths of single-family homes in cities across America, from Atlanta to Phoenix to Charlotte,” Merkley said in a statement to Inman. and the cost to homeowners. “This is a deeply troubling transfer of wealth and opportunity from ordinary Americans to Wall Street titans. The homes in our communities should be homes for families, not profit centers for hedge funds.” End Hedge Funds The Control of American Housing Act would kick hedge funds out of the real estate market so they can once again serve and benefit our families and communities.
The bill aims to free up more housing inventory for homebuyers by allowing hedge funds and large investors to sell homes they own within a few years, but stipulates that they must sell at least 10% of the total number of single-family homes they provide to households each year. The home is for sale and is prohibited from being sold to other investors or companies. Nonprofit organizations, public housing agencies, and homebuilders are exempt from the bill.
The bill would also establish the Housing Trust Down Payment Fund, into which tax revenue generated by the bill would be deposited to provide grants to households in need of down payment assistance.
The bill has been introduced in the Senate but has stalled in committee and has not yet received the votes needed to pass it. But at the same time, it has also been criticized by some in the real estate industry.
drop in the ocean?
Critics of the bill point to the relatively small number of homes owned by big investors at the national level, including one Ministry of Housing and Urban-Rural Development report survey results Institutional investors purchased just 3% of the homes sold nationwide in 2021, a year often considered the peak of the investor wave.
“The overall numbers are pretty small right now,” Kurt Carlton, co-founder and president of real estate investment marketplace New Western, told Inman. “I don’t think they’re pushing prices up at all.”
Critics also point out that many homes owned by investors are used as rentals, a product that is in high demand as more Americans become long-term renters and homeownership rates decline. Carlton believes that if corporate investors are forced to sell their portfolios, tenants will also be forced to relocate. “You’re talking about mass displacement of tenants,” he added.
It’s not just those in the real estate industry who work directly with investors who are concerned about tenants. Professor Brian An is director of the Master of Science in Public Policy program at Georgia Tech and has extensively studied the impact of corporate landlords in Atlanta.
Ahn said institutional investors are broadly targeting single-family homes, making it harder for average Americans to own a home — at least in some markets. But he also worries that bills like the End Hedge Fund Control of American Housing Act could displace tenants.
“We can’t ignore the tenants who are already living in these single-family rentals,” An said. “Without their demand, there wouldn’t be as much supply.”
Rep. Tom Emmer, a Republican from Minnesota, echoed some of those concerns during a June 2023 hearing on investor-owned single-family homes.
“We must not forget that single-family rental housing fills a void for large swaths of our country’s population who prefer or need to rent,” Emmer said. “We cannot demonize the institutions that promote the supply of quality housing that would otherwise be inaccessible to many Americans. “
Ann’s research explores the long-term effects of a dramatic increase in institutional landlords on Atlanta neighborhoods. A paper he published in April with Nicholas Polimeni of Georgia Tech found that Atlantans collectively missed out on more than $1.25 billion in real estate equity in the years following the great economic boom. , homeowners are pushed aside in favor of corporate interests.
One of the study’s other key findings is that corporate landlords tend to pay significantly less for their properties than the average homebuyer (37% on average), and when they sell their homes, they tend to do so for more than typical market value .
They also found that corporate landlords are more likely than smaller landlords to violate housing codes, that large landlords in the Atlanta area are five times more likely than other landlords to receive complaints from tenants or neighbors who violate housing codes, and that corporate landlords are more likely to significantly raise rents .
Find a solution
While Ahn acknowledged the need for change, he was critical of the Ending Hedge Fund Control of American Housing Act because it failed to take into account existing tenants of properties owned by hedge funds.
“What do we do with the tenants who are already in these homes? Should we just kick them out? He said. “We have to consider their welfare.”
He also took issue with the legislation’s lack of specific details on how the federal government would impose tax penalties on businesses that own more than 100 single-family homes, especially since there is currently no mechanism in place to track exactly how many homes are owned. Owned, as many homes are “owned” by anonymous LLCs set up by investment funds.
“It’s unclear how the government determines exactly how many homes these companies own, especially private equity funds, which are not required to report their subsidiaries to the SEC,” An said.
Potential solutions proposed by An and include Through their research, Polimeni implemented a rental registry – a localized database of rental properties that includes detailed information about property owners. Although many cities and states have rental registries, rental registration is prohibited in some areas, including Georgia.
In addition, they recommended that cities like Atlanta and Phoenix, which currently have few tenant protections in place, enact stricter protections for tenants. Their theory is that lax tenant protections in many Sun Belt cities made them targets for institutional investors in the first place.
“I think the government can send a strong message to business actors that in this city, in this state, if you don’t do business well, the risk of penalties is very high,” he said. “If you send them that signal, I believe these companies will be more responsible in terms of building maintenance and rents.”
Most importantly, Ann said what the single-family rental industry needs is better regulation at the state and local levels.
“There is no oversight mechanism,” he said. “Now people don’t even know which properties are owned by who and there’s chaos, which is really unfortunate.”
This was evident in a recent exchange Midtown Assistance Center’s Parsons had with a large real estate investment firm, in which he was trying to help provide rental assistance to a client who had not had the opportunity before Parsons The rent has already been mailed via money order.
When Parsons contacted the person in charge of rental assistance by phone to explain their situation, the response they received was that per company policy, the company would only hold customers’ money orders for two days, not when the check was issued. The center arrived via mail.
The representatives also refused to accept checks via email — which Parsons said is standard practice at his organization — simply because it was against company policy.
This created a very distressing situation for Parsons’ client, who faced being labeled as rent arrears.
“She was almost having a panic attack, it was causing her anxiety, it was affecting her heart, she felt like her blood pressure was going up,” Parsons said. “And they just didn’t care.”
His client eventually moved out of her rental apartment rather than risk an eviction lawsuit against her.
“I couldn’t help her at all,” Parsons said. “We feel like we’re failing.”
Email Ben Vader
