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Institutional investors may be driving up home prices, but data limited

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The research arm of Congress reviewed studies about how institutional investors have affected the U.S. housing market, but reached few conclusions about how such investors are affecting homeownership for Americans.

The U.S. Government Accountability Office reviewed 74 studies and talked to experts about the impact of institutional investors. The report said evidence was limited.

“Information on these investors’ effects on homeownership opportunities and tenants (e.g., eviction rates) was unclear because data are limited and there is no consistent definition of institutional investor,” according to the report.

The homeownership rate peaked at about 70% before the financial crisis and reached a 30-year low (of about 63%) in 2016. Since 2016, the rate has increased, hitting about 66% near the end of 2023, according to the report.

The Great Recession led to more renters, including those who lost homes to foreclosure. Investors jumped in, buying up homes.

The rate of renting increased after the financial crisis. The estimated rentership rate fell below 33% in 2004 – the lowest in U.S. history – before climbing to 37% in 2013, a rate not seen since the 1960s. By 2017, the rentership rate was an estimated 36%, according to the report.

Institutional investors came out after the financial crisis and bought up more of the housing supply, including foreclosed homes. As foreclosure rates declined, some investors switched to buying homes one at a time through real estate agents.

The GAO report estimated institutional investors owned about 2% of the housing market

Most market trends analyses GAO reviewed defined institutional investors as those owning 1,000 or more properties. According to one estimate, by June 2022, 32 investors each owned more than 1,000 single-family properties in the U.S. Collectively, this totaled nearly 450,000 homes, or about 3% of all single-family rental homes nationally. Based on our analysis of publicly available information, as of the end of 2022, the five largest investors owned about 300,000 homes, or nearly 2% of all single-family rental homes nationally.

An analysis of the corporate filings of three publicly traded institutional investors found most homes were in moderate-income and higher-income neighborhoods.

“However, studies of specific geographic areas indicate that investors have different home acquisition strategies, which may influence the neighborhoods they invest in,” according to the report.

So what was the result of all that investment?

“Studies we reviewed found institutional investors may have increased home prices after the 2007–2009 financial crisis, especially in locations with concentrated institutional investor activity,” according to the GAO report.

However, the report noted many additional factors affect homeownership rate housing prices.

Some lawmakers want to get institutional investors out of the housing market. Critics of the practice say it drives up home prices and rents.

In July 2023, U.S. Sens. Sherrod Brown, D-Ohio, and Ron Wyden, D-Oregon, introduced a bill to restrict tax breaks for corporate investors that buy up homes, often driving up local housing prices and rents. The Stop Predatory Investing Act would prohibit an investor who acquires 50 or more single-family rental homes from deducting interest or depreciation on those properties.

Another bill, introduced a few months later, called the End Hedge Fund Control of American Homes Act, would ban hedge funds from owning such homes and require them to sell at least 10% of the total number of single-family homes they own to families per year over a 10-year period. After a 10-year full phase-out, all hedge funds will be completely banned from owning any single-family homes.

That bill would also hit hedge funds with a $50,000 per single family home per year tax penalty on the number of single-family homes owned above either zero or a scheduled 10% reduction per year over 10-years winding down to zero. And it would put a 50% tax on the fair market value of any future hedge fund purchase of a single-family home. Tax penalties would be reserved for down payment assistance for people seeking to buy homes sold by hedge funds.

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