This City Aims to End Institutional Home Purchases

Newark is about to get far less friendly to institutional investors playing in the single-family rental market. But the issue is far bigger than one city in New Jersey and the ultimate result could be, if not killing, then maiming the SFR goose that lays the golden rent checks.

“In cities and even suburbs across America, institutional investors are eroding the American dream of homeownership as they convert owner-occupied homes into corporately owned rental units,” according to a statement from Newark Mayor Baraka. “In Newark, where we have worked hard for years to expand homeownership, we will do everything possible to combat this dangerous trend.

Setting off Newark’s response was a report from the Rutgers Center on Law, Inequality and Metropolitan Equity that noted “almost half of all residential purchases of 1-4 unit parcels were bought by limited liability entity landlords.” 

Anyone in CRE would recognize that an LLC isn’t necessarily the same as an institutional investor, but when it comes to public sentiment, that may not matter. Even though the report acknowledges, deep in the text, that an LLC is not necessarily owned by an institution, the report’s author, Rutgers professor of law David Troutt, was quoted by the city as saying, “Our report shows that the national trend of investor buying of one-to-four unit homes in predominantly Black neighborhoods is acute in Newark where almost half of all real estate sales were made by institutional buyers.”

There is a 6.8 million single family house shortage and a severe shortage of rental housing at every price point. In the third quarter of 2021, Redfin reported that investors bought 18% of US homes that sold, although housing doesn’t move quickly from one hand to another like many other assets and there are questions of whether. The National Association of Home Builders quotes numbers suggesting that the total of homes owned by large corporations is under 1.5%.

However, in a housing crisis like the US is seeing, expecting nuance in public discussion may be wishful thinking and much of the public may not listen to what industry people feel is reason. 

For years, even conservative publications like the New York Post have written about institutional investors snapping up homes. Last year, a CNN headline said, “Wall Street is buying up family homes. The rent checks are too juicy to ignore.” In March 2022, the New York Times ran a story with the headline, “Investors Are Buying Mobile Home Parks. Residents Are Paying a Price.”

The issues aren’t just bad press. Last year, Los Angeles considered a motion to stop tech companies and private equity firms from buying affordable single-family housing as investments.

Perhaps moving more toward build to rent could make a difference, as it would add to the rental supply without subtracting from the potential house purchase. Even so, larger investors in SFR, BTR, and the smallest apartment buildings will have to be cognizant of public sentiment lest they find themselves under the thumb of public legal restrictions.