Real Estate News and Market Moves Week 15

Do investors actually positively impact communities?

Since the early days of my career as an SFR investor, impact has been important. 

Initially it was easy to assess. In 2009, while primarily working on abandoned houses in neighborhoods like Harrisburg in Augusta, Georgia, the lack of investment made impact immediate and apparent. 

Neighbors were thankful for the improvement to the houses in their neighborhood and community. And the residents we rented to were grateful for homes in significantly better shape than most low-income housing. 

Not everyone appreciated our effort. After one particularly long week, and on a date night with my wife, I was confronted by neighbors who disapproved of a neighboring renter. It was one of many lessons I would learn about the complexity of working in affordable/workforce housing. Creating an equitable solution to satisfy all stakeholders is a tightrope walk across a pit of razor blades.

In 2013, Auben began working with a huge institution who committed hundreds of millions of dollars to buying dilapidated housing, making material and cosmetic improvements, and significantly raising rents. 

We became the poster child for outside investment steamrolling into town. Was it good for the neighborhoods and communities? Everybody had an opinion. And, there was no consensus. 

A decade after institutional capital came into the space, the debate continues. And as rental housing economist, Jay Parsons, points out, there is a lot of information which indicates investment in SFR is not a bad thing. 

Read below for a very interesting, recent LinkedIn post by Parsons:

Fair warning: If you really, really, really want to believe that investors drive up home prices and that the world would be a better place if investors were banned from buying houses, you won’t like this newly released academic research.

Here are the punchlines from the academic study:

1)    Investors do not drive up home prices. The study examined if home prices would increase less in neighborhoods where investors were banned from buying homes and renting them out. The result? No impact at all to prices, but there was another impact…

2)    The biggest impact in neighborhoods where investors were allowed to buy homes and rent them out? Diversity. Homes rented out were occupied by residents who were younger and less affluent than buyers in the same neighborhood.

3)    Rents increased 4% LESS in neighborhoods where investors were allowed to buy homes and rent them out. Why? Simple supply and demand. When you ban new rentals, you artificially limit supply even as demand continues to come in – which, in turn, drives up rents. (For disclosure: The authors noted the rent data was less robust.)

The skeptics will point out this study was done in the Netherlands and that the U.S. is different. That’s fair, but let’s look at all three points above and consider their applicability in the U.S.

On the first point, Freddie Mac published a detailed study of U.S. home prices last year and came to the same conclusion – that investors were not a primary contributor of driving up home prices since 2020. (They listed four other factors and noted “what may surprise you is that investors don’t make our list of top drivers.”)

On the second point, this is common sense. Renters in the U.S., too, are indeed younger and less affluent. Allowing rental homes helps diversify neighborhoods anywhere.

On the third point, the laws of supply and demand apply everywhere – not just in Europe.

None of these conclusions are especially surprising, but they’re helpful in combatting popular false narratives. Much anti-investor sentiment is rooted in anti-renter sentiment, as renters are too often wrongly dismissed as second-class citizens underserving of living in nice neighborhoods. Renters are people, too, and they need homes. Homeownership is wonderful, but not everyone is able or willing to be a buyer at any given point in time. They shouldn’t be punished for that.

Read the full study Parsons references here.