The SFR Industry Could See a Come-To-Regulation Moment

The current real estate situation in Berlin is enough to give a CRE professional heartburn. A vote will decide whether the city confiscates apartments from any owner of more than 3,000 properties, according to a Wall Street Journal report.

The vote is likely to pass, according to the story, because people are angry about rising rents. And while confiscations are unlikely—the referendum is non-binding, and the city would go into debt for the roughly €36 billion to be paid for the 240,000 affected units—it could cause politicians to double down on existing regulations.

Although such a vote isn’t likely in the U.S., there is anger over rising home prices, costs of single-family rentals, and the perceived position of institutional investors. The question is whether, like in Berlin, popular backlash could push politicians, if not at the federal level, then state or local.

Part of President Biden’s plans to increase affordable housing supply has been to call for restrictions on “large investors” from buying as many single-family homes as they do.

News such as BlackRock’s purchase of Home Partners of America, the latter of which owns and rents out 17,000 homes, or that investors bought one of every six homes in the second quarter of 2001, according to Redfin, don’t make for warm and fuzzy feelings.

That’s far from an accurate overall picture. “Investor purchases [of single-family homes] are less than 5% of the market,” Sara Rutledge, an economist at real estate investing site Millionacres, tells GlobeSt.com. She also points out that “investors need to buy or build at competitive price points to meet return requirements and build-to-rent properties increase the housing supply.”

“The notion that large single-family rental home companies are somehow adversely impacting the market for home purchases in the U.S. is not supported by the data in any way, shape, or form,” David Howard, executive director of the National Rental Home Council, explains to GlobeSt.com. “Further, U.S. Census Bureau data show that markets with greater concentrations of homes owned by large companies actually have higher rates of individual homeownership—including Atlanta, Charlotte, Phoenix, and Tampa, to name a few—and over the last five years those rates of homeownership have been growing faster than in markets where large companies are less active.”

But the data exists in an uncomfortable context. “Homeownership is becoming harder and harder to achieve for most first-time homebuyers because of the competition from—not exclusively, although very much so—institutional buyers,” says Milton Andrade, a broker at Franklin Realty Consultants. The recent increase in investor purchases reminds people of the way large buyers snapped up many foreclosed homes and then rented them out after the 2008 financial collapse.

“Someone has to look out for the little guy,” Andrade adds. “Politicians should be wary not to seem anti-business and anti-competition, but a roof over your head and the ‘American Dream’ of homeownership” is a hard image to ignore, especially when people must vote you back into office.

Some think the regulation scenario is unlikely. “From my experience working with public officials and observing local, state, and federal residential real estate policies, I don’t foresee future regulations in the single-family or multifamily rental sectors,” Morris Kaplan, president of Kaplan Residential, tells GlobeSt.com. “In fact, limiting regulations during the approval process for single family rental projects would reduce cost, possibly provide more affordability, accelerate delivery timelines, and generate tax revenue in a timely manner which is beneficial for municipalities and counties.”

But not all agree. “More institutional ownership will lead to more regulation,” says Khari Washington, owner and broker of 1st United Realty & Mortgage.

And action doesn’t have to happen at the federal level. “There is potential for local officials—especially in areas with rent control policies—to want to intervene in the rising rental rates for single-family housing,” Rutledge says. “However, the locations where rents are rising at a double-digit annual pace are dominated by Arizona, Texas, and parts of the Southeast that are not politically favorable to rent control.”