America’s housing affordability crisis isn’t solely caused by too few homes. It’s also because of too few usable ones. A new report from real estate marketplace New Western suggests that local fix-and-flip investors—not homebuilders—are key to helping solve the problem.
The report, conducted in partnership with the National Association for Housing Revitalization (NAHR), found that local investors surpassed builders in delivering affordable, entry-level housing inventory in 2025.
To explain why, the report compares the housing market as a ladder made up of distinct rungs, or segments: renting, a starter home, a move-up home and a long-term or legacy home. The first home purchase of a smaller, affordable starter home is the initial step most buyers take to start building equity. In turn, that helps financial stability compound over time.
But when that first run is inaccessible, the entire system seizes up. Renters stay stuck renting longer than planned, savings stall and the circulation of homes across price segments slows. This not only hurts affordability but also housing and economic mobility, the report revealed.
The report divided all 2025 housing purchases into three price bands: homes priced above $498,000 (upper), homes priced from $261,000 to $498,000 (middle) and homes priced at $261,000 and below, designated the affordability or starter band. While purchases were relatively evenly distributed across the three tiers, the inventory strain was concentrated at the bottom.
Builders concentrate higher up the ladder
New construction activity is focused on the middle and upper bands, with only 19% of new builds falling into the starter segment, the report found. Once their all-in costs are tallied up for land acquisition, permitting, zoning, infrastructure and construction, builders grapple with delivering homes at entry-level price points while turning a profit.
On the other hand, though, local investors delivered 120,193 units in the starter band in 2025 compared to just 37,931 from builders, outperforming them by nearly 217%.
The report dubbed this phenomenon as “the Great Renovation”—a market-driven process in which distressed, vacant or outdated homes are bought, rehabbed and resold on the market as affordable starter homes. More than 72% of these fix-and-flip homes originated off-market in 2025, because properties in need of renovation couldn’t sell through traditional home-sale channels.
Despite being blamed for affordability woes, institutional investors represented only 1.4% of total home purchases in 2025, the report found. Many of these investors largely pulled back from buying existing homes after 2022 as interest rates rose, focusing instead on build-to-rent communities.
The typical mom-and-pop investor is far from a Wall Street property baron. Most investors surveyed typically buy one to five homes each year, operate within 30 minutes of where they live and spend less than $100,000 on home renovations.
In the sub-$215,000 price band, independent investors supplied 83.75% of new inventory—415% more than builders, the report shows. In markets like St. Louis, rehabbed homes outnumbered new builders in the starter segment by more than 10 to one.
Housing policy implications
The report estimates roughly 15 million vacant homes and more than 6.7 million occupied homes in substandard condition exist in the U.S. today. This suggests the revitalization pipeline could sustain activity for decades at current rates.
However, the report’s authors caution that policies aimed at restricting investor activity risk reducing one of the most effective channels for delivering attainable inventory for entry-level homebuyers.
In fact, frameworks that support revitalization could expand affordable supply without requiring new land, lengthy permitting timelines or zoning reform—all issues that continue to plague homebuilders.
In 2025, investor activity generated over $20.9 billion in listing agent commissions—a sign, the report argues, that revitalization does not compete with the traditional housing market but rather creates additional activity it wouldn’t otherwise have.
