Market Update, February 1, 2024

There’s been a lot of talk about investors and their ability to influence the real estate market, especially large institutional investors. There’s a concern that large investors will – and do – have an outsized influence on the costs of renting and purchasing homes. 

Parcl Labs is an up-and-coming real estate data analysis firm, and they’ve been covering what investors are doing in real estate markets around the country.

According to Parcl, “Across the US, 3.4% of all single-family homes are owned by operators with 10+ units. For the largest companies in this space with 1000+ units, that is 0.7%.”

Large investors – those with 1000+ units – own more than 10% of all homes in some zip codes around Atlanta.

Big hedge funds have advantages that let them wield significant influence in the housing market and compete effectively against individual buyers. 

Hedge funds typically have significant financial resources, for example, which lets them make large purchases without relying on financing or mortgages. This gives them an advantage over typical buyers when there’s competition to purchase a home.

Hedge funds also employ sophisticated data analysis techniques and have access to vast amounts of market data. This allows them to identify trends, pinpoint lucrative investment opportunities, and decide which properties to buy and when.

In 2021 and 2022, investors purchased $10 billion in Denver-area real estate. In the fourth quarter of 2023, large investors bought two homes for every one they sold in Denver, indicating that their portfolio of homes here is growing. They’re buying homes and turning them into rentals.

Investors are buying and holding homes in Indianapolis, Philadelphia, St. Louis, and Columbus, Ohio, as well as in Denver, Milwaukee, and Atlanta. 

Housing is becoming attractive to large companies. Blackstone is spending billions of dollars to enter the single-family home rental game. Invitation Homes rents 80,000 homes and targets homes in “desirable neighborhoods in convenient proximity to major employment centers, good schools, and transportation corridors.” 

In other words, they often buy homes in high-demand areas where individuals and families want to own a home.

When hedge funds own ten percent or more of the homes in one zip code, as they do in Atlanta, they have a significant impact on home prices and rents. 

We’re short of homes in the United States, and lack of inventory is one reason prices are so high. When homes are removed from the market and turned into rentals, inventory stays low, and prices remain high. With such a large share of all rentals, big companies can sway rents and, in turn, home values. First-time buyers feel shut out of of the market because they often compete for the same homes as big companies with many resources.

A bill introduced in the House and Senate would prevent hedge funds from owning single-family houses in the United States. According to the New York Times, “During the decade-long phaseout period, the bill would impose stiff tax penalties, with the proceeds reserved for down-payment assistance for individuals looking to buy homes from corporate owners.

If signed into law, the legislation, called the End Hedge Fund Control of American Homes Act of 2023, could upend a growing sector of the housing market, and potentially increase the supply of single-family homes available for individual buyers.”

The legislation isn’t likely to pass, according to various sources.

In the coming years, watching how corporations, the government and the general public approach the growing trend of large investment companies purchasing real estate will be fascinating.