Investors Outbidding Families, Driving Up Housing Costs

A recent study by Pew found that private investors bought nearly 25 percent of homes in 2021, up from the historic trend of 15-16 percent. 

New research from Pew points to a significant boost in the number of single-family homes bought by private investors. Nationally private investors accounted for nearly a quarter of all single-family home purchases; Maryland faired slightly better with just over 20 percent of home sales. This aggressive strategy by Wall Street has helped to exacerbate the affordable housing crisis.

To compound an already precarious situation, a considerable number of these homes are located in neighbors where families are already struggling. Moreover, a large amount of this stock is starter homes, which for many represent an avenue to grow and sustain generational wealth. This investor-led siphoning of the housing stock is presenting several significant consequences: numerous first-time home buyers are priced out of the market, meaning they miss out on opportunities to grow generational wealth or retirement funds; rents in these communities often see significant increases, further eroding a families ability to save and in many cases make ends meet; finally, families may be pushed out of communities that they may have called home for generations as housing becomes unaffordable.

Two continuous themes are continuously found throughout the Pew piece: one size fits all legislation causes more problems than it solves, and local governments need to be empowered to act.

One Size Fits All Legislation:

The most startling statistic from Pew is that highly regulated states like California and highly deregulated states like Georgia both saw massive increases in the percent of investor home purchases (29 percent and 33 percent, respectively). Both California and Georgia interfere with local autonomy but to two different extremes. Leaders in Sacramento often go out of their way to infringe on local autonomy and enact more drastic policy solutions than may be necessary. At the same time, those in Atlanta frequently hamstring local governments by restricting their powers altogether. Both models have one very similar flaw, a lack of appreciation for the variations in their local communities. In Maryland, the eastern shore region has a variety of different concerns from those in the western counties or those in the Washington-Baltimore region. Any consideration for geographic and community diversity has been lacking in the vast majority of the purported state-level affordable housing solutions. That oversight is why many state-level policies are mainly failing.

Local Government Empowerment: 

To build on the logic that no two communities are alike, it is essential to recognize that the policy solutions for different communities will not necessarily be the same. Local policy leaders are closest to the problems and the people. Therefore, it is only natural to deal with incredibly localized issues, such as housing, locally. When Brookings Metro Senior Fellow Jenny Schuetz testified in front of Congress earlier this summer, she highlighted several federal solutions to help empower local governments in combatting the affordable housing crisis:

  • create financial incentives for local governments to revise their zoning in favor of small, moderately priced homes, and better integrate federal investments in housing, land use, and transportation. This should be supported with federal funding for technical assistance to local governments…
  • Stressing that high housing costs create more distress, and greater barriers to homeownership, for low-income, Black, Latino, and Native households, Schuetz emphasized that the most direct, straightforward way to help low-income households afford decent-quality housing and accumulate savings is to give them money…. Congress could create federal tax incentives to better target first-time homebuyers. Encouraging households to set aside short-term savings would increase financial stability for both renters and homeowners.
  • Affirming that rental housing quality and tenant legal protections are important to renter households’ well-being regardless of who owns the property, Schuetz noted that better data collection from federal agencies could increase transparency of rental property ownership and monitor concentrated ownership within local markets. Local and state governments would benefit from federal financial support and technical assistance in setting up rental registries. Federal agencies, such as the Consumer Financial Protection Bureau, could be enlisted to monitor actions of large firms with rental portfolios that extend across multiple states.

It is abundantly clear, both from academic research and trial and error policy making by the states, that solutions to the housing crisis need to be locally driven with resources and support from the state and federal governments. The road to affordable housing will not be simple or easy, but it will be local.

Read the full  Pew article.

Read more about Brookings Metro Senior Fellow Jenny Schuetz’s testimony.

At the 2022 MACo Summer Conference Solutions Showcase, “Let’s Talk Housing: National Problem, Local Solutions,” an expert panel discusses county-level policy options and opportunities to help solve our housing crisis. 

The 2022 MACo Summer Conference will be held at the Roland Powell Convention Center in Ocean City, MD, from August 17-22. This year’s theme is “Taking Care of Business.” More information can be found on our conference website.