As would-be home buyers find themselves shut out of the market due to rising home prices and lower but still high interest rates, questions have been raised about whether institutional investors with their vast resources of cash and data are a source of the problem.
Nowhere is the question of how to respond to the rise of institutional investors that make mass purchases of single-family homes more urgent than in Atlanta. A May analysis by the U.S. Government Accountability Office (GAO) found that giant firms play a bigger role in the Atlanta metro than in any other region.
The GAO reported that 25% of the single-family market in Atlanta – 71,832 homes -- was held by corporate investors in 2022. Seven national corporate landlords own 51,252 homes in the 21 county-region, according to a new analysis performed by Parcl Labs for the Atlanta Regional Commission, the regional planning and intergovernmental coordination agency. “Each of these corporations’ primary business model is leasing single-family homes, some of which may later be sold to the tenant,” the report stated.
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Parcl Labs’ methodology enables the tracking of address-level real estate information, such as property ownership. It found that four counties – led by Henry County -- had the heaviest concentration of investor-owned housing stock as a percentage of the total. In sheer numbers of investor-owned homes, however, Gwinnett County outstripped the others.
A study by two professors, Taylor Shelton of Georgia State University and Eric Seymour of Rutgers University, found that 11% of single-family homes available for rent in metro Atlanta (19,000) were owned by just three companies: Invitation Homes, Premium Partners, and Amherst Holdings. Their control of so many properties in a select group of neighborhoods gave them significant market power over tenants and renters, the authors said.
They described “tangled webs of corporate ownership which are meant to deliberately obscure the true ownership – and concentration – of such properties from public view.” One technique is to operate through smaller limited liability companies (LLCs) that protect the larger companies from liability or legal action tenants might take, and make it difficult for tenants to know who their ultimate landlord is.
“Only the assets held by the LLC are used in calculating the appropriate level of damages,” Shelton noted. In the five core metro Atlanta companies studied, the three largest landlord companies operated behind more than 190 LLCs, registered to 74 different addresses across 10 states and one territory. In addition, many institutional investors are not publicly traded companies and are not subject to the same reporting requirements. To disentangle these webs, the researchers developed a methodology they hope others can use.
According to the GAO, institutional investors are defined as those owning 1,000 or more properties. It calculated that nationally, by the end of 2022, the country’s five largest investors owned about 300,000 homes or nearly two percent of all single-family rental homes. In addition to Atlanta, Dallas, Charlotte, and Houston were among the cities with the largest number of corporate SFRs. The GAO found corporations tend to target areas experiencing growth in population, employment and rental demand, especially in the Sunbelt. By focusing on specific areas, they can create efficiencies in acquisition, maintenance, and leasing.
The GAO analysis also revealed that institutional investors have different acquisition strategies. “The association of property, neighborhood, and school district characteristics varied for each individual investor studied,” the GAO reported. Its report found conflicting studies of the effects of institutional investment on rents and on homeownership rates and noted that data is limited.
After the Great Financial Crisis of 2007-2008, a wave of foreclosures swept the nation. It enabled institutional investors that had previously avoided the single-family housing market to buy homes in bulk, often paying cash and using technology to enhance the acquisition and management of many individual properties, the GAO said. In recent years, purchases have generally made through the Multiple Listing Service or local brokers, using technology platforms to efficiently identify and purchase single or small numbers of properties that fit their investment criteria.
According to Redfin, investors bought 16% of homes that sold in 3Q 2024, for a total of $38.8 billion. Two percent fewer homes were sold than in 3Q 2023, and the market is nearing pre-pandemic levels of around 50,000 homes per quarter – compared to 100,000 homes per quarter in 2021. Some 46% of homes bought by investors were low-priced homes.
Investor purchases are falling in some metros – down 23.8% in Fort Lauderdale and 19.4% each in Newark and Miami, for example. Redfin attributed the slump in Florida to the increasing frequency of natural disasters, rising home insurance costs, and soaring homeowners’ association fees. In contrast, investors in the quarter bought 27.6% more homes in Las Vegas, 21.8% more in Seattle, and 19.5% more in San Jose.
A study by Parcl Labs reported by ResiClub, a media and research company for the U.S. housing market, found increases in the share of single-family homes bought by investors between March 2021 and March 2024 in cities with more affordability or population growth. These included Memphis, Atlanta, Birmingham, Indianapolis and Charlotte. Investor buys fell in high-cost markets, especially in California and Arizona.
Another study by Parcl Labs for ResiClub found that in March 2024 the highest gross yields on annual median rental income from single-family rentals were in Cleveland (8.4%), followed by Buffalo (8.1%), Chicago (7.8%), Detroit (7.5%) and Pittsburgh (7.4%). The lowest gross yields were in San Jose (3.2%), San Francisco (4.1%), Los Angeles (4.2%), Salt Lake City (4.3%), and San Diego (4.4%).
“The best cash-flowing opportunities/returns are found in lower-cost Midwest and Northeast markets,” ResiClub commented.
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