Sunday, June 16, 2024

The impact of institutional investors on neighborhoods when purchasing homes


The Impact of Institutional Investors on the U.S. Housing Market: A Comprehensive Analysis

The Rise of Institutional Investors in the U.S. Housing Market

In recent years, the U.S. housing market has seen a significant increase in the number of single-family homes being purchased by institutional investors. According to a comprehensive analysis published by Tim Henderson of Pew Charitable Trusts’ Stateline news service, nearly a quarter of all single-family homes sold in the U.S. in 2021 were bought by investors, up from about 15% annually since 2012.

The trend of institutional investors entering the single-family home rental market gained momentum following the Great Recession from 2007 to 2009. The availability of foreclosed homes at discounted prices attracted investment firms, leading to a surge in their portfolios, particularly in the first half of the 2010s.

Technology played a significant role in the growth of institutional investors in the housing market. Renters could make payments online, and then-Federal Reserve Chairman Ben Bernanke encouraged investors to buy foreclosed homes. This shift led to a notable presence of institutional investors in more than 50 U.S. cities by 2021, compared to just a few cities in the ’80s and ’90s.

Cities with strong job growth and limited housing supply, such as Atlanta, Phoenix, Tampa, and Charlotte, have been the primary focus of institutional investors. These investors tend to buy homes in bulk, sometimes sight unseen, and often invest in properties that require significant repairs.

While the presence of institutional investors in the housing market has raised concerns about the displacement of long-term residents, research shows that their investments can also improve neighborhood quality by renovating run-down homes and investing in infrastructure like streetlights.

Studies have shown that acquisitions by institutional investors can lead to an increase in rents but also improvements in neighborhood safety and quality of life. Additionally, the clustering of investors in certain areas has been found to drive up home prices, benefiting individual homeowners in those neighborhoods.

Overall, the rise of institutional investors in the U.S. housing market has reshaped the landscape of single-family home rentals. While their presence has raised questions about affordability and displacement, their investments have also brought improvements to neighborhoods and provided new opportunities for renters in the market.

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