Backlash Grows as Real Estate Giants Increase SFR Market Share

The growing ownership of large swaths of single-family rental houses by institutional investors is drawing scrutiny from Congress as big players raise rents and cut services to increase ROI.

Sen. Sherrod Brown, (D-OH), chairman of the US Senate Committee on Banking, Housing and Urban Affairs, last week accused real estate investors and large asset management firms of cynically exploiting a “captive” housing market to increase the profit of large stakes they are acquiring in single-family rentals.  

“Private equity firms, corporate landlords and investors saw a shortage, and they saw a captive market. They see these [single-family houses] as nothing more than annual return on equity,” Brown said, in an opening statement at a committee hearing Thursday entitled “How Institutional Landlords are Changing the Housing Market.”

A perfect storm of higher home prices, tight inventory and rising mortgage interest rates continues to squeeze home buyers out of the housing market, validating the growth strategies of real estate investors who participated in a “land grab” for single-family houses in recent months, buying up existing single-family rental houses and tracts for construction of more built-to-rent houses.

Brown, who held a separate hearing on Tuesday to allow renters of single-family houses to vent their frustration with 50-percent rent increases and service cuts imposed by new corporate landlords, said real estate investment firms are using the tight market and rent increases as part of their marketing pitch to new investors.

“Investment firms have been touting rising rents and renters’ lack of options to attract investors,” he said.

Blackstone Group, which exited the single-family rental sector in 2019 when it sold its last shares in invitation Home–the largest US player with 80,000 homes for lease—has jumped back into the home rental market with both feet, inking a $6-billion deal to acquire Home Partners of America, a buyer and renter of houses that owns more than 17,000 homes in the US.

Blackstone also has invested $240 million in an equity stake in Toronto’s Tricon Residential, which buys single-facility rentals in North America.  J.P. Morgan Asset Management, Rockpoint Group and Canadian property giant Brookfield Asset Management also have acquired single-family rental companies in recent months.

Investors injected about $30 billion in debt and equity into the built-to-rent sector in 2021, with nearly 100,000 built-to-rent homes starting construction last year, according to the Hunter Housing Economics consulting firm.

Investors who bet big on the market for built-to-rent single-family homes in 2021 have been rewarded with the best ROI of all property sectors, with risk-adjusted annual yields of more than eight percent, the highest of 18 property sectors tracked by analytics firm Green Street.

Large institutional investors and private equity firms increasingly are being assigned the blame for the high-demand, low inventory US housing market by major media outlets, most notably an October article in the New York Time Magazine that labeled the spate of acquisitions of single-family rental companies a “$60 billion housing grab by Wall Street.”