The rise of iBuying did not happen in a vacuum. Although these companies and those with iBuying services face ongoing market challenges, the truth is that the conditions and technologies that allowed them to flourish—and the marks they will leave on real estate—have more far-reaching implications.
That is the thesis of a new paper by Desiree Fields, associate professor at the University of California, Berkeley, whose research is part of a larger series examining digitization in housing. In it, she traces how the “intersection of big tech and big capital shapes market power,” with the possibility to re-form real estate and housing for decades, and in a much more fundamental way than iBuyers on their own could.
“The combination of technology, finance capital and rentier relations mobilized by corporate landlords has changed the logic of the market for single-family homes such that market opportunities are now gauged in relation to these institutional players,” Fields wrote.
Focusing specifically on how these outsized market influencers are eroding affordability and equity, Fields paints a dour picture of the dangers created by concentrating power in housing markets, or over-relying on technology that can turn real estate into a pure numbers game focused on maximizing profit.
While iBuyers have yet to seize any significant marketshare, and their ability to turn a profit remains uncertain—at least during the more volatile parts of a housing cycle—big hedge funds and corporate landlords have already proven their ability to operate and grow in the single-family space, both during a downturn (like in 2008) or a boom market.
“Early movers such as Invitation Homes, American Homes 4 Rent and Tricon American Homes occupy a position of power in this market landscape because they began to assemble portfolios in a market downturn, have already achieved economies of scale and its accompanying efficiencies, possess a deep bench of data on which to base their acquisition and operational strategies,” Fields wrote. “Coming from the world of finance rather than real estate, these powerful players have reorganized the logic by which the market historically operates in ways that seem likely to further hone their advantage.”
These companies snatch up already very limited housing stock, and often focus on properties that would otherwise serve middle-class, first-time homebuyers. Indeed, the share of first-time homebuyers fell to an all-time low in 2022, while the housing wealth of middle-class homeowners shrank disproportionately to other income levels.
Fields writes the exact same practices and technology used by iBuyers allows these investors to turn single-family homes into rental assets at scale. Pretium Partners, one of the largest corporate landlords in residential real estate, owns more than 80,000 homes, with the next three largest single-family rental companies owning in additional 150,000, according to Fields.
By comparison, when Zillow Offers—the largest iBuyer by volume—shuttered operations in late 2021, it owned about 18,000 homes.
“The most significant difference between corporate landlords and iBuyers is likely not in their acquisition algorithms, but their value propositions, which are distinguished by holding versus flipping. Corporate landlords can make an all-cash offer within hours of a property being listed,” Fields wrote.
Pretium directly benefited from Zillow Offers’ demise, picking up a few thousand of the failed iBuyer’s homes as Zillow unloaded its portfolio last year.
Fields admits that the total ownership by institutional investors remains small at between 2% and 3% of the country’s housing stock. But she cites an analysis by Private Equity Real Estate News that claims that share could balloon to 40% by 2030 (if single-family follows the same trajectory as multifamily).
“The greater the marketshare under their control, the fewer options tenants and homeowners will have outside of their spheres of influence, and the more corporate landlords will control market pricing, influence local policymaking, and evade taxes and regulations,” Fields claims.
In the end, one of the biggest effects—from iBuyers, corporate landlords or so-called “click-to-invest” platforms (which allow hundreds of retail investors to buy stakes in individual homes)—comes from their ability to out-compete everyday homebuyers. Fields calls it an “intensely uneven” landscape, as everyday consumers will never be able to go up against the billions of dollars and prescient data power of the big players.
Where does all this lead? In the short term, Fields envisions a tougher environment for renters, who will be faced with higher rental costs, less upkeep or maintenance of their properties and automated evictions as big landlords seek to maximize revenue. Potential homebuyers will necessarily be crowded out of areas where institutional buyers see opportunity.
In the longer term, Fields worries that the “logic” of the traditional housing market is at stake. The idea of a home being something purchased by a family for their own use and benefit, accessible to many or most (a reality that already seems to be disappearing) could fade as big tech and capital re-shape how homes are viewed.
Fields is not the only one asking these kinds of questions. National Association of REALTORS® Chief Economist Lawrence Yun wondered last summer if institutional investors were pushing the country toward a “renter society.”
Regardless, Fields says that the success or demise of any single platform does not alter the reality of transformational change wrought by technologies and money flooding into residential real estate.
“Considered alongside the record-breaking $6 trillion of home equity generated during the pandemic, the shifting power relations of the housing market engineered by the intersection of big tech and big capital are likely to shape patterns of access and affordability that will endure for generations,” she says.
