Some of the state鈥檚 most powerful legislators want Big Landlord out of California鈥檚 single family neighborhoods.
The Legislature will consider at least three bills this year to keep so-called institutional investors from gobbling up too many of the state鈥檚 widely coveted single-family homes.
Apartment buildings have long been an , but the Big Money-owned single family rental is a 21st Century invention. During the Great Recession new companies began cobbling together rental empires out of the nation鈥檚 glut of foreclosed single-family homes.
Defenders of the business model applaud the role it played in propping up local housing markets and quickly filling homes that would have otherwise sat vacant and derelict. Critics liken these depriving would-be homeowners of a shot at the American Dream while hoarding the profits of the last decade鈥檚 run-up in national home prices and rents.
That debate ratcheted up again during the pandemic when millions of white collar renters, suddenly freed from the office, sought out more space further from the country鈥檚 urban cores. Today鈥檚 high interest rates have slowed that boom, but most analysts predict that the industry is here to stay, absent new restrictions.
California may be the first to enact some.
鈥淲ho are we fighting for? Are we fighting for the corporate interests?鈥� San Diego Assemblymember Chris Ward, chair of the Assembly鈥檚 housing committee and author of one of the three bills, said on the Assembly floor last month. 鈥淥r are we fighting for Californians, for their ?鈥�
For all the debate, open questions about the industry鈥檚 size and its effect on the state鈥檚 affordability crisis abound. That鈥檚 in part because 鈥� something some state lawmakers have tried, but failed, to remedy in the past.
As lawmakers gear up to take on corporate landlords, here are seven things to know:
1. What would these bills actually do?
- , written by Assemblymember Alex Lee, a Milpitas Democrat, would ban an institutional investor from buying or investing in additional single family home properties and then renting them out.
- , by Senate Housing Committee Chair Nancy Skinner, a Berkeley Democrat, would go a step further. It would ban institutional investors from 鈥減urchasing, acquiring, or leasing鈥� a single-family home or duplex for any reason.
- , authored by Ward, would ban developers from selling homes in bulk to big investors. This is aimed at increasingly popular 鈥渂uild-to-rent鈥� projects, in which developers build single-family subdivisions with the specific aim of selling them to single-family rental companies. This bill is backed by the state鈥檚 association of REALTORs, who have an interest in banning bundled sales that cut their members out of the buying and selling process.
2. What are 鈥渋nstitutional investors鈥� anyway?
It depends on whom you ask. Even the three bills described above use different definitions.
Lee鈥檚 bill uses the size of a company鈥檚 investment portfolio as the cut-off, deeming any 鈥渂usiness entity鈥� with at least 1,000 single family homes on its books as 鈥渋nstitutional.鈥� That would apply to just , according to estimates compiled by the California Research Bureau, which conducts research at the request of state lawmakers.
Skinner鈥檚 proposed ban would apply to a broader category of investor: Any managed fund, including private equity funds, and real estate investment trusts , which are publicly traded companies that invest in real estate.
Ward鈥檚 bill uses Lee鈥檚 1,000-property cut off, but also specifically calls out those trusts in his bill language.
3. Do corporate landlords own a lot of homes?
Businesses that own at least 1,000 single family homes , according to an estimate by the Urban Institute, though the report鈥檚 authors concede that the 鈥渄ata and definitions are somewhat fuzzy.鈥�
Nearly half a million homes is a big number on its face. It鈥檚 more than the total number of homes in San Francisco. But compared to the housing stock as a whole, it鈥檚 less than half a percent. Even looking at just single-family rentals, the vast majority of which are owned by small and medium-sized landlords, the Urban Institute鈥檚 鈥渓arge institutional鈥� share makes up around 3%.
鈥淚 think that the investor problem is kind of a boogeyman for the housing market,鈥� said Daryl Fairweather, economist with the real estate listing website RedFin. 鈥淧eople want to blame someone for high home prices and it鈥檚 easy to blame investors just because they鈥檙e, like, an opaque group of people鈥eally, the problem is just the lack of supply of housing.鈥�
The industry鈥檚 critics counter that nationwide figures mask clustering in particular regions 鈥� and within regions, in particular cities, or even neighborhoods. They also say that the industry is growing.
Earlier this month, RedFin estimated that roughly 13% of all the homes sold in the final quarter of last year were .
That鈥檚 a sizable chunk, but again, the devil is in the definition. RedFin labeled an investor as any buyer with one of a number of tell-tale corporate signifiers in its name, such as 鈥淟LC鈥� or 鈥渢rust.鈥� That would likely include a lot of 鈥渕om and pop鈥� landlords, who have opted to put their properties into corporate structures to shield themselves from legal liability.
4. What about in California?
Lists of top single-family rental markets vary, but Atlanta, Georgia; Charlotte, North Carolina; and Jacksonville, Florida regularly come out on top. California does not appear to be a destination of choice for the nation鈥檚 largest investors. are owned by investors with 10 properties or more, statewide, according to the California Research Bureau.
What institutional investor-friendly markets have in common: Rapidly growing populations and relatively low real estate prices compared to rents.
鈥淭hat does not describe California at all,鈥� said Laurie Goodman, an economist at the Urban Institute.
When big investors do show up in California it鈥檚 disproportionately in the state鈥檚 quickly growing, still relatively affordable regions: the Inland Empire, the southern half of the San Joaquin Valley and the Sacramento suburbs. The county with the highest share of single family homes owned by big investors is Fresno at 5.9%, according to the California Research Bureau.
Fresno is a bit of an unusual case, in that the largest single owner there, JD Home Rentals, is a local outfit whose portfolio of some 2,000 homes are clustered in that region.
Statewide, the largest single corporate owner is also the country鈥檚 biggest. Invitation Homes kicked off the corporate single-family rental rental trend when it started buying up distressed houses, rehabbing them and putting them on the rental market in 2012. Originally funded by the, the company has since become its own publicly traded company. The company owns 84,567 homes, of which , according to its most recent filing with the Securities and Exchange Commission.
5. Do corporate landlords cause rents to go up?
There are plenty of anecdotes of big investors sweeping into a neighborhood, only for . Do big investors cause rents to rise or do rising rents attract big landlords? When researchers have tried to disentangle those two trends, they鈥檝e produced mixed results.
One national overview found that reliably preceded an increase in single-family investor activity three months later. But they didn鈥檛 find that the reverse was true, implying that investors chase after rising rents, but don鈥檛 cause them.
鈥淚 think that the investor problem is kind of a boogeyman for the housing market.鈥�DARYL FAIRWEATHER, ECONOMIST, REDFIN
But another study found that single-family areas with higher concentrations of corporate ownership than comparable neighborhoods. These companies were able to exploit their relative control over a neighborhood鈥檚 housing stock to extract higher than fair-market rent from tenants, the researchers found. But the researchers also found a second explanation behind the rental run-up: By beefing up security across a slew of properties in the same area, they were able to lower crime rates and 鈥渆nhance neighborhood quality.鈥�
Many larger landlords also use rent-setting algorithms from new tenants. Defenders of the industry say those programs simply allow landlords to find an area鈥檚 market rent, though and have argued that, at least in the apartment rental industry, it has amounted to illegal price-fixing.
6. Do big buyers take homeownership opportunities away from first-time buyers?
Every house that鈥檚 bought by a major investor and converted into a rental is one fewer opportunity for a would-be first-time buyer. That zero-sum trade off is particularly acute in places where few new homes are being built. A study out of Atlanta found that an influx of predicted a decline in the area鈥檚 homeownership rate. In contrast, a study in the Netherlands found that the reverse was true: When cities banned investors from converting homes into rentals, the .
Defenders of the industry offer a counterpoint: So what? In places where home prices are out of reach for the average person, putting more single-family houses on the rental market gives more people the opportunity to enjoy some of the trappings of the American Dream 鈥� a yard, a garage, maybe a better school district 鈥� even if they can鈥檛 afford a down payment. The fact that major investors means they are often 鈥渃ompeting for separate types of products鈥� than first-time buyers anyway, said Goodman.
There鈥檚 also some evidence to suggest that allowing more rentals in single-family neighborhoods, no matter who the landlord is, makes those neighborhoods . Case in point: The also found a decline in the number of rentals, an overall rise in rents and an influx of older, richer and whiter residents in the neighborhoods in which those restrictions went into effect.
It鈥檚 unclear how relevant that all is in California. 鈥淲e sell 99% of our homes to individuals,鈥� said Dan Dunmoyer, president of the California Building Industry Association, a trade group representing the state鈥檚 home builders. For most first-time homebuyers in California, 鈥渋t鈥檚 not like you are competing with a big institutional player, other than a rich, single person from the Bay Area.鈥�
7. Are corporate landlords bad landlords?
It depends on what you mean by 鈥渂ad.鈥�
Large institutional landlords appear more likely to run by-the-book, standardized operations. There are upsides to the corporate touch: Large corporations are more likely to operate 24/7 property management hotlines and have plumbers and electricians on retainer. Studies have also found that when filling a vacant unit, corporate landlords are more likely to use , which are free of explicit (if ) racial bias.
The downside: Corporate landlords can be ruthlessly efficient, with an emphasis on 鈥渞uthless.鈥� One study, for example, found that they are significantly more likely than small landlords to file as soon as they are legally allowed to.
And even companies with in-house legal teams might not always follow the law. In January, and restitution for hiking the rent on nearly 2,000 tenants in excess of what state law allows. In 2021, settled a class action lawsuit over habitability complaints.
鈥淩elationships are much more formal when it鈥檚 Invitation Homes as opposed to the guy next door and there are pros and cons to that,鈥� said Goodman, the Urban Institute economist. As an example, she noted that her adult daughter had a landlord who used to accept pizza as amends for a tardy rent check.
鈥淵ou can鈥檛 send Invitation Homes a pizza,鈥� she said.
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