As home prices tick up, the dream of owning a home is becoming more and more elusive for many renters. As metro Atlanta’s population continues to grow, strong demand and a limited supply of stock are certainly driving up home prices. But there is more to understanding the crazy-hot housing market than meets the eye.
We take a look at the unexpected reason why home prices won’t stop creeping up.
Homeowners are not always who you think they are
For generations, owning a home has helped individuals and families build wealth and pass it on. But most recently, corporations and real estate investors flush with cash have been jumping into the fray and snapping homes for sale, distorting both the rental and home-buying markets.
“When you think of the average Atlanta homeowner, you might imagine a young family ready to settle down. However, the reality is often much different. Instead, it’s corporate investors with all-cash offers who turn around and rent properties for sky-high rates,” says Samyukth Shenbaga, Managing Director of Community Development at ARC. “We’re seeing a national corporate housing buying crisis, and metro Atlanta is very much at the center of it.”
Corporate home buying took off following the 2008 recession, as corporations sought to take advantage of low housing prices while families were turned out of their homes during the mass foreclosures.
Today, corporate ownership of private homes is a major force in our region and across the country, with many of these homes clustered in the Sunbelt. In the third quarter of 2021, corporate investors purchased a whopping 42.85 of the homes for sale in metro Atlanta, according to a June 2022 Congressional hearing titled “Where Have All the Houses Gone? Private Equity, Single Family Rentals, and America’s Neighborhoods.”
These companies raise billions of dollars in capital from hedge funds, pension funds, ultra-high net worth individuals, and other institutional investors, and their ability to buy homes with cash gives them a competitive advantage over buyers using mortgages, especially with mortgage rates rising, according to the testimony gathered by Congress.
Who’s behind these investors?
University of California, Berkeley researcher Desiree Fields estimates that four companies own in excess of 27,000 single-family homes in metro Atlanta. These are: Invitation Homes, American Homes 4 Rent, Tricon Residential, and Front Yard Residential.
And these companies are in turn owned by major conglomerates you’ve likely heard of. Blackstone Group, one of the most prolific corporate purchasers after the 2008 recession, owns Invitation Homes. The Vanguard Group, Inc. is the plurality owner of American Homes 4 Rent. Meanwhile, Front Yard Residential is a subsidiary of Pretium and Ares Management Corporation. You might not know them by name, but Pretium and Ares is the second-largest owner of single-family rentals in the country, with over 55,000 homes in its portfolio.
Black communities are being disproportionately affected
Many of the homes corporations are buying are in predominately Black neighborhoods. An interactive map from the Washington Post outlines the proportion of homes purchased by corporations and shows the disparity: Black neighborhoods are facing higher rates of corporate purchases than white neighborhoods.
The average white majority zip code in the U.S. sees just 12% of homes purchased by investors, as compared to 30% in black majority zip codes.
In metro Atlanta, for example, the 30349 zip code, which covers South Fulton and College Park areas, is 92% Black. In 2021, corporations purchased 58% of the houses for sale in that area. Comparatively, zip code 30328, which covers Sandy Springs and surrounding neighborhoods, is 73% white. In 2021, corporations purchased just 10% of the houses for sale in that zip code.
A drag on first-time homebuyers
Considering these difficulties, and the uncertainty of how long things will last because of the decrease in supply, how will this affect the American Dream of homeownership?
In a New York Times article, Moody’s Analytics chief economist Mark Zandi states that first time home buyers are going to have a difficult time trying to purchase a house for the next two or three years, especially while paying higher rents, which cuts into their ability to save for a down payment.
To keep the American Dream accessible for the next generation, City of Atlanta Mayor Andre Dickens calls for regulations of investors seeking to buy up the local housing supply. Additionally, at a national level, the Biden Administration has committed to improving access to affordable housing for Americans, rather than for investors – and that’s certainly a start. However, additional interventions will be necessary to keep the housing stock available to the Americans, not corporations, who need it most.
This fascinating article in the Journal of Urban History offers a look into how housing became a hot investor asset class.
What’s Next ATL, produced by the Atlanta Regional Commission, is a community resource that explores how metro Atlanta is growing and changing, and how the region is addressing its most pressing challenges.