First-time home buyers are being squeezed out by investors and businesses
CHARLOTTE, NC — In her first encounters with clients, many of whom are hoping to buy a first home, Sarah Ortiz Hilton reviews a list of warnings.
They may have to offer tens of thousands of dollars more than the asking price for those offers to be rejected anyway, Ms. Hilton, a real estate agent, tells them. They may have to pay thousands of dollars in non-refundable fees to get a seller to consider their offer. And if they’re looking for a house for less than $300,000, they might be out of luck.
In part, his cautionary message reflects the hot real estate market, rising interest rates and limited supply across the country. But particularly in booming Sun Belt markets like Charlotte, it also reflects something else: the growing influence of real estate investors buying homes, especially in the lower end of the market, and turning them into rental properties.
In cities like Charlotte, this trend is exacerbating the shortage of homes for sale, driving up prices and putting homeownership out of reach for many first-time buyers, the biggest losers in today’s market.
About 2.5 million households buying a first home will be shut out of the market this year, estimates Nadia Evangelou, senior economist at the National Association of Realtors. This represents 15% of all first-time home buyers. In an already tough market, investor buying is adding to the hurdles.
“The more investors buy up entire communities and turn them into rental communities, the more people have no choice,” said Ms. Hilton, who moved from New York to Charlotte in 2007, lured by the opportunity to buy a home at an affordable market. “Either they can no longer afford to buy, or there is nothing to buy.”
A map compiled by Mecklenburg County, which includes Charlotte, shows a sea of dots signifying business ownership throughout the region; the exception is a slice-of-pie segment stretching from downtown Charlotte – the historically whiter and more affluent neighborhoods often referred to as “the corner”. Over 93% of homes purchased by businesses in May 2021 were purchased for less than $300,000. Many of them were in predominantly black neighborhoods.
Nationally, large investment firms remain a small fraction of homebuyers in the United States.
“It’s really hard to prove that a handful of companies that own 300,000 homes across the country really have the ability to influence things like home prices and rental rates,” said David Howard, director Executive of the National Rental Home Council, which represents the single family home rental industry.
But their share is growing: real estate investors bought a record 18.4% of homes sold in the United States in the fourth quarter of 2021, compared to 12.6% a year earlier, according to real estate company Redfin.
And in some markets, particularly the relatively affordable Sun Belt metropolitan areas, their share is much higher.
In Charlotte and Atlanta, investors bought more than 30% of homes sold in the fourth quarter of 2021, according to Redfin. In Jacksonville, Florida, Las Vegas and Phoenix, they bought just under 30%.
Housing industry representatives note that these figures, which define investors as any institution or business, also represent purchases by smaller local owners, who may own only one or two buildings through a limited liability company.
For decades, Marjorie Parker knew all of her neighbors in Charlotte’s east end of Hidden Valley. Living there was not always easy, as gang violence periodically rocked the streets. But Ms. Parker found solace in the strength of the community and the economically stable middle-class life it provided for black families.
The first change she noticed were the flyers outside her door. They offered to buy his house for cash. Soon his phone started ringing several times a day with calls proposing the same thing.
She had pledged to keep her home, but for many of her neighbors, some of whom were behind on property taxes or struggling to maintain their properties in old age, the offers were a welcome solution.
When a house next to her went up for sale last year, young families flocked to view it. But the house was soon sold to a rental company.
“There should be a cap to that – you can’t have a few people who have all the houses,” Ms Parker said. “Where ordinary citizens can’t buy a house is a sad day in America.
With apartments in her neighborhood typically renting for $1,500 or more, Ms Parker and other longtime landlords worry that property tax increases could displace even more residents.
And there are also problems for tenants. Various studies have shown that business owners are more likely to raise rents, evict their tenants and poorly maintain their properties than small landlords. A 2018 Department of Housing and Urban Development study found that large business owners in Atlanta were 68% more likely than small owners to file eviction notices.
Faced with a constant encroachment from corporate buyers, some neighborhoods are fighting to ward them off.
Just north of Ms Parker’s neighborhood, residents of the Avalon townhouse community in Mallard Creek have seen businesses quickly grab homes for sale and convert them to rentals. Last year, more than 40% of homes there were occupied by renters, according to Keri Miller, the homeowners’ association treasurer.
The association, frustrated by what it said was poor maintenance of tenant-occupied homes, voted on a lease amendment that would require anyone buying a home in the community to live in the unit for at least a year. before renting it.
The amendment passed and by last February the percentage of tenants had dropped by 10%, Ms Miller said.
Industry officials criticize these efforts as discriminating against tenants.
“Why should a young family who is unable to afford a home for whatever reason be prevented from living in a neighborhood close to schools, jobs and other neighborhood amenities?” said Mr. Howard.
Demand for rental housing is high and “businesses are coming in and trying to meet that demand,” he said. He added that companies are also tackling the supply shortage by building new rental housing communities from scratch.
But critics say renting a single-family home offers far fewer opportunities for long-term stability and wealth creation than owning one. And the typical starting rent of around $1,500 in the area barely helps meet the needs of tenants at the bottom of the market.
Jameisha Wilkes spent months looking for a home that would keep her close to her daughter’s autism therapy, her job at a food service warehouse and her mother’s house in the same housing estate.
Sale signs appeared outside modest homes in his housing estate in the northeast suburb of Charlotte. With the help of a down payment assistance program and financing for a mortgage of up to $180,000, she thought she might have a chance.
But when she searched Zillow’s homes, she was shocked to find that many homes in her neighborhood were selling for more than $300,000, double what some had sold about five years prior. Every now and then she would find something in another neighborhood closer to her price range, but that quickly disappeared.
“If there’s a house that’s affordable, it’s already gone within 24 hours,” Ms Wilkes said. “Most of the time I can’t even make it to the open house until there’s already an offer.”
Now Mrs. Wilkes is busy packing her things, but not moving home. After her landlord, Tricon Residential, which now owns more than 1,600 single-family homes in Mecklenburg County, offered to renew her lease for an additional $150 a month, she decided to move in with her daughter into a small one-bedroom apartment nearby while she saves money to buy.
Local officials are exploring ways to give people like Ms Wilkes a chance to become homeowners, such as buying land and offering it for less than market value, and creating legislation to add barriers to business ownership . But no specific policy has been proposed.
Efforts to curb the spread of business ownership are also slow at the federal level. A Senate bill that would close the legal, tax and regulatory loopholes “that allow private equity firms to capture all the benefits of their investments while protecting themselves from risk” has been sitting in committee since Senators Elizabeth Warren of Massachusetts , Sherrod Brown of Ohio and others presented this in October.
In the meantime, many homebuyers feel their last hope is a fluke.
On her road as a mail carrier, Ashlee Floyd was taking photos of signs for sale to search for paused listings, only to find one after another outside of her $300,000 budget. The offers she made on five houses were rejected.
Ms Floyd skimped on a higher down payment – cutting Christmas gifts and extra-curricular activities for her two children – and took as much overtime as she could, often working 65 hours a week.
Two years after she began her search, she found a home she could afford in a quiet subdivision in northwest Charlotte and a landlord who was committed to selling to a family, not a business. Last week it closed, paying $292,000, $27,000 more than the asking price.
“It’s over, the nightmare is over,” Ms Floyd said. “We just have a foundation now. This is where we will plant our seeds and grow from here. That’s how it feels.