Real estate agents aren’t only the ones who help sell properties, they’re often the ones who own and invest in them. In recent years, though, small investors are facing competition from Wall Street firms that buy single-family homes with speedy cash offers and remake them into rental properties. Lawmakers around the country have taken note and are proposing legislation aimed at restricting this. Are real estate agents onboard?
State Senator Louis Blessing, III (R-OH) and Assemblymember Alex Lee (D-CA) tell RISMedia that the industry has not been a friend in their efforts. Both legislators are working on legislation that would restrict or ban large investment firms from the single-family home market, noting that there is opposition from the real estate industry to their bills. Read more about their efforts in part one of this story.
“(Our bill) does not affect mom-and-pop landlords. Rather, it bans large real estate investment firms that already own more than 1,000 single-family properties from buying additional single-family homes,” says Lee.
“I’ve actually had a few real estate investors complain about this, who realized with (my bill), ‘Well wait a minute, I only own like 10 properties. This doesn’t affect me.’ But at the same time, I think they’re nervous in the sense that, it’s almost like they want to stand united,” Blessing says.
When asked about further legislative efforts to address institutional investors, Atlanta REALTOR® Maura Neill (affiliated with RE/MAX) expresses skepticism.
“I’m always a little nervous regarding any legislation that limits private property rights, because unfortunately, I think the unintended consequences of that kind of legislation is that mom-and-pop investors are negatively affected,” Neill says. “I’m an investor, I own a handful of properties, and I think the trickle down effect is—the intent is probably good. The intent is don’t limit the buying power of normal citizens and our rights to own property. But then how do you distinguish?”
When asked about the distinction Blessing’s bill makes for companies that use multiple LLCs to appear like a “small investor,” Neill was relatively more supportive. “I think if we were able to make a distinction in legislation that definitely made it possible to exclude from those penalties, the mom-and-pop investors who were doing it properly, then I think I would be more inclined to be in support of that.”
Noel Christopher, a long-time real estate professional and member of the Forbes Real Estate Council who has advised numerous single-family home investors, tells RISMedia that efforts to restrict single-family home rental units could have anti-consumer side effects.
“Sometimes you can have the argument of saying, ‘Okay, every home sold to an investor that goes through a renter is taking a home away from a homebuyer.’ And then you can say, ‘Every homebuyer is taking a home off the market for a potential renter.’ That’s how fragile our housing inventory market is today. It’s sometimes easy to look at as a binary thing saying, ‘Okay, institutional investors own all these homes. Now a homeowner can’t own those, but they’re actually serving a purpose,’” Christopher argues. “Not everybody wants to live in an apartment. People want to live in homes, especially when they have families, and that’s why 35% of all single-family homes are rentals.”
Christopher suggests broadly that universal homeownership is an unrealistic prospect and that, rather than single-family rentals taking away inventory, their presence serves renters.
“Not everybody is destined to own a home,” he says. “If you look at the homeownership rate across history, it’s around 65%.”
While Christopher notes that institutional buyers owning too much of a single neighborhood can lead to anti-tenant results (such as rent increases dictated by a landlord monopoly, not market conditions), he expresses doubt that measures to restrict these entities will ultimately pass.
“Personally, I don’t think (this legislation) has a chance of passing because when you’ve got some of the largest institutions in the world that invest into this asset class, our system is not set up to go against that.”
Another criticism of efforts to curtail institutional investors is related to the positive effects they have on housing. By infusing capital into the single-family market, that incentivizes greater construction, and those inventory gains can offset their rental conversion.
Robert Dietz, chief economist for the National Association of Homebuilders (NAHB), tells RISMedia that increasing supply should be the No. 1 concern.
“I understand the argument that some people make, that if you have a financial institution that comes in and has a capital markets advantage and is able to acquire a home, it’s essentially competing against, hypothetically, a first-time buyer. In terms of the economics, the concern is not who’s buying the homes, it’s the fact that there’s just simply not enough in the stock,” he says.
Lee has another bill to address the inventory issue by charging the California Housing Authority to create social housing. “We have to take a comprehensive approach to tackle the housing crisis,” he says. “An approach that preserves existing housing, boosts the production of new homes and protects the rights of tenants and homeowners.
Blessing, however, feels that tax incentives for institutions to buy homes don’t demand they put inventory back into the communities where they’re buying.
“When you hoard homes like this, you can’t build new property fast enough to combat these guys. So what happens is, they’re pulling supply that would otherwise be owner-occupied potentially off the market,” Blessing says. His proposal for an institutional buyer registry in Ohio is likewise designed around giving firms that work with the state tax incentives to do so.
“You tell the state, this is our entire structure, this is our agent in charge, these are the properties that we own under this system of common control. It works with all of that. In return, if you’re on that registry—and only if you are on that registry—can you then get the non-business credit for rental properties, can you then get the business income deduction for rental properties, can you then get or have the ability to bid and foreclosure auction process processes throughout the state. That way we’re saying, ‘Look, you want to get state benefits, you have to disclose your structure.’”
Likely, at least part of the slowdown in Wall Street’s interest in single-family homes is due to the unfavorable buying market. Logic follows that if the market becomes more favorable to buying, it’s plausible that quick cash offers will start filling up single-family home mailboxes once more.
When asked if she sees a way for real estate agents to work with these institutional buyers (assuming they’re a permanent fixture of the market now), Neill says she isn’t personally interested.
“I think that in a lot of cases, they’re just throwing a bunch of offers against the wall to see what will stick, and so I personally wouldn’t accept an offer to represent a buyer like that because I don’t want to sit in my office and write dozens of offers a week that aren’t going to go anywhere and that are lower than I think is fair value for that home. So it’s not my business model. I think that if you really wanted to go that route, you could probably convince them to work with you. But I think that the numbers are the numbers in their mind, and getting advice from an agent, the kind of advice that I give my buyer clients, is what I think they should offer.”
However, Neill notes that agents have a vital on the ground role to play in how significantly institutional buyers can increase their stock—and it comes down to client communication.
“The other thing I’ve found is that we’ve had some sellers who are like, ‘Well, we don’t want an investor to buy our house. We love our neighbors. We don’t want this to get turned into a rental. We want it to be somebody who’s going to love the house as much as we do.’”
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