When Raysall Robertson reflects on the past two years, she feels exhausted. She says, “I have had many days where I wanted to cry and break down.” It’s a lot. “I’m trying to keep faith in everything and the system.”
In 2021, the single mother with two sons, who had rented in Acres Homes for almost a decade, decided that it was time to become a homeowner. She and her agent, Vachael, went out looking for a house that had three bedrooms and two bathrooms after getting preapproved for a $250,000 loan. They are still searching.
They’ve tried to bid full price on 20-30 properties in places ranging from the south side of Houston to the Spring suburbs but haven’t had any luck. Starks claims that “cash-only investors” from all over have outbid Robertson in almost every case.
She says that you need to be rich to be able to bid twenty thousand dollars or thirty thousand dollars over the asking price in order to compete with these companies. You’ll never beat them. The seller’s agent would ask for the highest bid, but they might get eight to ten and then say that they had an investor in New York who was paying cash.
Imagine, for instance, the situation in October 2021, when Robertson missed out on a $190,000 home listed in Houston’s Bammel Village, in the far north of the city. Harris Central Appraisal records indicate that a limited liability company in Dallas had purchased the house in late November of that year. According to Realtor.com, the house was listed as a rental a week after it was purchased.
Robertson is a government contract employee who works in the health care administration. The long search for a home has been particularly frustrating, as the mortgage interest rates have doubled since her start, decreasing how much she can afford.
According to a report by the National Association of Realtors, deep-pocketed institutions have been rushing into the booming single-family rental home market in recent years. No state has seen this more than Texas. (Institutional buyers) can include corporations, hedge funds, private equity firms, and small businesses of all stripes. This includes mom-and-pop landlords with multiple properties. Invitation Homes is a Dallas-based real estate investment trust that owns 80,000 single-family homes across 16 U.S. markets. This includes about 5,000 in Texas. Amherst Residential is another major national player with its headquarters in Austin.
With home prices and rents skyrocketing since the COVID-19 pandemic–though both have cooled some lately due to rising interest rates and worries about the economy–affordable housing activists have accused corporate investors of driving up home prices, as well as rents and fees, muscling out first-time home buyers; evicting tenants at higher rates; and worsening the racial gap in wealth and homeownership.
Gina Hinojosa is a Democrat who represents Austin. She has introduced two bills in the state legislature this year to rein in corporate landlords. HB 1056 would require investment firms who lease homes in Texas to register ownership information with the state comptroller county-by-county. The other measure, HB 10057, would prohibit an investment firm from entering into an “executive” (or tentative contract) to purchase a one-family home until the thirtieth day following the listing of the property. The House Business & Industry Committee referred both bills to them in early March.
Hinojosa, Texas Monthly, said: “We’re hearing that investors are making all-cash, no contingency offers. This leaves little or no room for the average home buyer to offer.” Homeownership is a great way to build wealth. Investors are changing the face of Texas single-family property.
The purpose of HB 1056 was to increase transparency in situations where investors own a large number of rental properties in a specific geographic area. Hinojosa says that this could lead to higher rents because the options for renters are fewer. We also know that renting to an institutional investor is the best predictor of eviction.
There’s no doubt that Texas’s single-family home market is changing, but it’s not clear if institutional buyers are responsible. Recent surveys and research indicate that they’ve at least put more pressure on the state’s limited housing stock and increased the affordability crunch for some areas.
Would Hinojosa’s proposals actually address these issues? Would any legislative action be able to do this?
Nationally, institutions owned about 700,000 single-family rentals last year, or about 5 percent of the 14 million single-family rentals in the country, according to research from MetLife Investment Management. Still, MetLife said that share could increase substantially, to more than 40 percent, by 2030. For now, big Wall Street– and private equity–backed institutions—which first got into single-family rentals in a big way by snapping up foreclosed homes after 2008’s Great Recession—still lag far behind mom-and-pop landlords, who have traditionally owned the lion’s share of houses for rent.
The National Association of Realtors conducted a survey of its members in 2010 and found that institutions purchased 13.2 percent of the residences sold in America in 2021. This is up from 11.8 percent in 2010. These homes were purchased by the largest institutions solely to be rented out. Texas had the highest percentage of institutional buyers in all states, at 28 percent. Texas counties with even higher percentages included Tarrant (52%), Rockwall (45%), Midland (44%), Dallas (43%) and Travis (41%)
The NAR stated that institutional buyers focused their purchases in the Sunbelt States with a rising number of households, a high concentration of renters, high incomes, and high education levels. According to the survey, institutional investors are most likely to buy homes if they pay cash, purchase the property as-is, or promise to close the deal quickly.
The NAR discovered that institutional firms spent a lot on houses in Texas. Investors paid 70 percent more than the median home price in Texas, the highest of any state. According to the Texas Real Estate Research Center of Texas A&M University, the median home price for Texas in January was $319,000, which is more than 20 percent above the $262,000 that it was in January 2021.
Adam Perdue is a research economist with the A&M Center. He says that the preliminary data from the center shows a significant increase in the institutional investors’ share of the single-family housing market in each of the four major Texas metros. These investors, defined as “known corporations, LLCs, and other corporate identifiers,” were responsible for 19% of single-family home purchases in Austin in 2022. This is up from 8% in 2017. Investors also accounted for 19% of the market in Dallas Fort Worth, an increase from 11% in 2017 and 17% in San Antonio, where they had purchased 10% of homes five years ago. Investors accounted for 15 percent of the market in Houston compared to just 8 percent five years ago.
Perdue says that the main reason for rising Texas rents and home prices is interest rates. These were at record lows between 2020 and 2021, which encouraged a buying frenzy, before they shot up last year due to the Federal Reserve’s fight against inflation. Perdue also cites the unexpectedly strong economic growth of the state as well as supply-chain problems and other restrictions to new home construction in areas where people want to live.
Perdue believes that the expectation of continued rent increases is what may be driving investors to “target these areas to both increase cash flow and appreciation” in the housing units that they purchase. Arben Skivjani said in a recent webinar that the rent growth for 2023 in Texas’s largest markets will range from 2 to 5 percent.
At a Financial Services subcommittee hearing in the U.S. House last June, and in an accompanying report, the five largest investment firms—including Invitation and Amherst Residential, which had more than 32,000 houses at the time—were criticized for acquiring homes that otherwise likely would have gone to first-time home buyers or low- and middle-income buyers, or both. Shad Bogany, a Houston real estate agent and former chairman of the state Realtors Association, testified that by buying and renting homes in neighborhoods with larger populations of Black residents, profit-driven investors are “creating a generation of renters that will miss out on the benefits of homeownership, the ability to create wealth and stabilize communities.”
However, the big investment firms deny that they are in competition with each other for homeownership. The big investment firms say they own too little of the 90 million single-family homes in the United States to make a meaningful impact. They insist that talking about their influence is misguided and diverts attention away from the real problem.
The National Rental Home Council, based in Washington, D.C., says that the primary problem facing housing markets throughout the United States is a lack of supply. This is especially true for Texas. The NRHC, which has fewer than 30 member companies in the United States, represents the interests and concerns of fifteen single-family rental companies in Texas, who own approximately 40,000 homes in the state, mainly in Austin, Dallas, Fort Worth, Houston, and San Antonio. According to the U.S. Census Bureau, Texas has about 9 million single-family homes in total, with about 1.5 million of them being rental homes.