Institutional and large corporate investors— single, non-individual entities such as limited liability companies, limited liability partnerships, and real estate investment trusts that have portfolios of 1,000 or more housing units—represent a growing percentage of owners of single-family homes, according to the U.S. Department of Housing and Urban Development’s (HUD) Winter 2023 issue of Evidence Matters. As a result, HUD says properties are taken off the market for individual buyers and upward pressure is put on both home prices and rents. Activity has been concentrated regionally in the Sun Belt and in particular neighborhoods—typically low-income, historically nonwhite and disinvested areas. In addition to outlining the development of institutional investors in the single-family housing market, the issue of Evidence Matters outlines ways to mitigate the potential negative impacts on individual home buyers and renters.
Institutional investors had long avoided the single-family market because of the challenge of managing dispersed properties. Digital technologies, however, including improved data and analytics, have transformed the single-family rental market. Technology has made both purchasing and managing dispersed rental properties more efficient and profitable. Corporate owners can use digital tools to acquire property quickly and other tools to screen applicants, accept payments, manage maintenance requests, and gather data on rental markets.
As noted previously, investor activity grew rapidly during the COVID-19 pandemic, and its ongoing effects may further shape market dynamics. However, the recent rise in interest rates and financing costs appear to have slowed the growth of investors’ purchases (although not their market share, because investors may be better able to weather interest rate increases than individual buyers). Investor purchases fell for two straight quarters following their peak in the third quarter of 2021. At the same time, as higher mortgage rates have driven away individual home buyers from the purchase market, home builders have increasingly turned to institutional investors to finance "build-to-rent" developments. Elora Raymond of Georgia Tech says that the relevant data point will be the rate of return on the investment in single-family homes compared with alternative investments. Any time the return rate favors single-family homes, investors will buy them.
Although different types of investors have different motivations, market conditions have aligned at certain points to make single-family homes an attractive option for many investors (see "Institutional Investors: A Local Perspective"). Some investors may primarily be interested in purchasing and holding properties to collect rental streams and fees