American Rental Market Being Cornered By Wall Street Investors

The American dream of homeownership, or even being able to rent a suitable home, has been under an unrelenting attack since at least the 2008 financial crisis and likely since well before the collapse of the housing bubble that had been inflated then. In our current year, the critical lack of housing supply is causing serious malinvestment that is likely to bring even more difficulty to renters and potential home purchasers.

The ongoing housing shortage makes it easier for Wall Street investors, including banks and other large institutional investors, to take control of the single-family rental home market. Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), warns that unless more homes are built, investors with deep pockets will corner the market, limiting growth potential for families struggling to buy homes.

MetLife Investment Management states institutional investors will own 40% of single-family rentals by 2030. Currently, commercial property firm Costar reports holding roughly 700,000 single-family rentals or 5% of the 14 million units in the U.S. The industry jump-started in 2012 when the U.S. government initiated a program that allowed big banks to purchase hundreds of thousands of foreclosed homes from Fannie Mae.

Rising rent, easy tenant availability, and increasing property values contributed to Wall Street’s interest in single-family rentals. However, families have struggled to buy homes due to high mortgage rates, climbing home prices, and low inventory.

The NAR reports that existing home sales fell 36.9% year-over-year from January 2022 to January 2023. The current inventory of 980,000 unsold homes is only enough to supply three months of demand. This pinch has resulted in home prices rising for a record-breaking 131st consecutive month in January.

One of the major players in the space is Home Partners of America. This rental-property management firm buys homes and rents them to tenants who can eventually buy them outright. The company, a wholly-owned subsidiary of major investment bank Blackstone, manages 26,000 units as of August 2022.

Last fall, the company paused home purchases in 38 regional markets, citing “several factors,” including demand and climbing prices. However, the company still intends to continue home purchases in 20 high-growth markets, waiting for a widely predicted decline in home prices brought on by an expected U.S. recession to get a better deal on properties in these regions.

While some landlords have addressed the national shortage by building homes, others have constructed entire neighborhoods to be used as rentals. For example, last January, investment firm Pretium Partners launched a $600 million joint venture with home builder Onyx+East to construct 2,000 homes for rent, building upon the firm’s portfolio of 70,000 single-family rentals.

According to Jordan Ash, housing director at the Private Equity Stakeholder Project, “It’s almost a captive market. They’ve been very explicit about how people are shut out of the home buying market and will be perpetual renters.”