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Home Values are on the Rise—Many Residents Won’t Reap the Rewards

The housing market has been in a precarious state of recovery since the crash of 2008 and subsequent foreclosure crisis in 2010. Economists and homeowners alike are constantly speculating on when the next crash might come; but for now, things seem to be healthy.

Unfortunately, for many American families, a growth in home values doesn’t mean the same thing it might have ten years ago. Historically, homeownership has been a staple component of the American Dream, in no small part because it was one of the most reliable ways for a family to increase their net worth. Today, however, a large percentage of homes belong not to families or even mom-and-pop landlords, but vast corporate institutions.

How did Wall Street seize control of billions of dollars in property formerly owned by middle class Americans? Just as importantly, what can be done by middle class home renters and owners to protect themselves and their financial futures? Nearly a decade after the housing crisis that led us here, the answers to these questions are only just beginning to come to light.


How it Happened

As millions of families lost their homes to foreclosure in the late 2000s and early 2010s, private-equity firms saw an opportunity to stockpile property that was both cheap and in high demand. By quickly establishing real estate investment trusts (REITs) and relying on international funding, these firms succeeded in buying up hundreds of thousands of homes.

While REITs have existed since the early 1960s, they’ve traditionally invested in commercial real estate. In the midst of the housing market crash, however, owning large swathes of single-family homes became an alluring option to generate income. This strategy has only evolved as we enter a new decade, with private-equity companies having spent tens of billions on single-family homes to date.

What this means is that single-family rental (SFR) has exploded from a niche industry to a booming market. It’s not showing any signs of slowing down, either. Following the example of the REITs that have already raked in profits from the SFR sector, an increasing percentage of new homes are being built-for-rent (BFR).

The rapid spread of these rental companies is staggering. A recent article published by The New York Times cites the total investment of Wall Street’s housing grab at $60 billion, along with several other troubling statistics:

  • Roughly 260,000 single family homes are now in the hands of Wall Street investors
  • The largest of these companies, Invitation Homes, owns roughly 80,000 homes
  • In some cities, institutional investors own anywhere from 8-11% of single-family housing

Why it Matters

Before the SFR boom, rising home values marked an increase in the net worth of the families who lived in them. For renting families today, it means an increase in costs. As property becomes more expensive to acquire, many REITS are looking to renters to make up the difference in income. This means higher rents, larger fees, and in many cases, inferior service as operating costs are slashed.

As a result of this increasing financial burden, many renters find the prospect of eventual homeownership drifting further and further away. Other prospective homebuyers, meanwhile, face a market where an increasing number of homes are only available for rent. Renters who fail to understand the terms of their often-complex leases can also face a financially crippling blow to their credit score if they’re forced to break the terms of their lease or otherwise face eviction.

A Los Angeles based study by Meredith Abood suggests that marginalized communities are disproportionately impacted by these issues. According to that study, large SFR companies control significantly more property in neighborhoods with large minority populations. Minority tenants also face higher rates of eviction.

Even homeowners don’t escape the influence of the largest of these SFR companies. As maintenance standards in corporate-owned SFR properties decrease, property values in these neighborhoods can also be brought down.


What Can You Do?

As the SFR industry continues to expand and rents continue to rise, homeownership and its rewards are becoming more elusive to renters and hopeful buyers alike. Structural change is often too little, too late for those most affected, but there are ways that both individuals and communities can protect themselves.

Home renters should be careful to document as much as possible when it comes to their residences. This includes all payment histories, renovations, repairs, and other changes to your home. If things should ever become litigious between you and your landlords, proper documentation can ensure that your case is fairly heard.

For prospective buyers, the window for finding and owning the perfect home could be falling shut. More and more homes on the market are being scooped up by rental companies, even as more new homes are being built for rent. Families who have been considering home rental as a stepping stone to eventual ownership may want to rethink their strategy and buy sooner than later. As the dominance of corporate landlords rises, rental rates will likely continue to rise as standards of service continue to flag.

Fortunately, now could be the perfect time to apply for a mortgage and avoid falling prey to predatory renting practices. With mortgage rates dipping to record lows this year, homebuyers and refinancers alike have what could be a once in a lifetime opportunity on their hands. Economists are still debating how low rates will fall and how long the trend will last, but if the shocking rise of the SFR industry teaches us anything, it’s that the housing market is always evolving in unexpected new ways.


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