Are Institutions Buying Up Single-Family Homes?

Institutional investors own less than one percent of single-family homes, and their impact on prices is modest. New evidence suggests their presence may reduce rents.

By Jason Sorens of AIER. Excerpts:

"Institutional investors, defined as those owning 100 or more homes in their portfolios, own less than one percent of the single-family housing stock nationally and only about three percent of single-family homes for rent. Their purchasing activities have declined since 2022, but even at the peak the largest (1000+ homes) investors accounted for under three percent of single-family house purchases nationally. Institutional investors matter more in some markets than in others, but in no metro area do companies with 100+ home portfolios own more than five percent of the single-family stock."

"Places with more large institutional investor ownership of single-family homes saw larger price declines over the most recently available 12-month period"

"Institutional investors help make the housing market more liquid and less cyclical. They upgrade the quality of the housing stock, typically at lower cost than smaller renovation outfits. They make desirable neighborhoods accessible for households that could not afford to buy in those neighborhoods. Increasingly, they are directly increasing housing supply."

"Most institutional investors tend to focus on particular neighborhoods or cities to reduce the per-unit costs of property management."

"Mortgage underwriting standards tightened dramatically after the Great Recession, making it difficult for younger Americans and those with a lot of income from “side gigs” and self-employment to qualify. As a result, homeownership rates declined. By making more single-family homes available to renters, buy-to-rent institutional investors have helped families that could not afford to buy or qualify for a mortgage to move into desirable neighborhoods."

"The most recent and careful paper on the subject finds that large institutional investors slightly raise house purchase prices and reduce rents. The effect on prices is truly tiny: for every percentage point of the total single-family housing stock owned by large institutional investors, house prices go up 1.7 percent. Since these investors own less than one percent of the single-family housing stock nationally, counterfactually eliminating all large investor ownership of single-family housing would decrease national house prices by less than 1.7 percent."

"for every percentage point of the single-family rental stock that institutional investors own, rents fall 0.7 percent. Since institutional investors own about three percent of the national single-family rental stock, the total effect on rents is around negative two percent. While small investors substitute to some extent for large investors, the Coven paper still finds that large investors increase the total supply of single-family rental homes by 0.5 for every home that they purchase."

"Typically, large investors renovate homes before renting them out. Invitation Homes reported spending about $39,000 per purchased home on renovations in 2021. Large investors may have a comparative advantage in buying and renovating homes because they have full-time teams working in specific regions according to established procedures and buying materials in bulk. Thus, large institutional investors increase the average quality of the US housing stock."

"Increasingly, large institutional investors expand total housing supply directly, through build-to-rent developments. In the Q2 2024 last year, build-to-rent (BTR) developments were 7.2 percent of all single-family house starts. BTR isn’t useful for getting renter households access to desirable neighborhoods, but it is especially useful for increasing overall housing supply, decreasing both sale prices and rents because the rental and for-sale markets are connected. When BTR drives down rents through new supply on the market, that encourages some households to rent rather than buy and reduces for-sale prices for buyers of the remaining homes on the market. BTR has been especially desirable in unfreezing a housing market challenged by mortgage lock-in."

"In the past year, housing prices have declined the most in markets where large institutional investors are concentrated. If we look at the largest 15 metro areas in the country, house prices have grown 0.5 percent in the markets with under one percent institutional ownership and fallen 3.6 percent in the markets with between one and three percent institutional ownership. In the only market with over three percent ownership (Atlanta), prices have fallen 2.9 percent."