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For many Americans, the housing crash of 2008 was just the start of a decade-long housing crisis.
After the real estate bubble popped, taking the U.S. economy with it, more than 9 million homes were foreclosed or sold at a loss, leading to fears that tracts of abandoned neighborhoods would become “ghost towns.”
While this happened in some areas of the country, elsewhere, the empty homes were an opportunity—most of all for Wall Street investors that swooped in to buy properties in bulk and rent them out at a profit.
In the decade since the crash, 7 million more households have become renters, while only 1 million more have become homeowners, according to Census data. And “institutional landlords,” as the Wall Street investors are called, have become a major driver of the affordable housing woes many Americans are now facing—from steep rent payments all the way to eviction.
Some cities make it harder than others to evict people. In Los Angeles, eviction is relatively easy—as Melinda and Michael Peffer found out when the home they had lived in was sold to an investment company and they were served with an eviction notice, despite having been, in their words, model tenants for 16 years.
About 200,000 homes nationwide are owned by investor companies, but they are heavily concentrated in a few cities — typically those where housing markets are already tight. This includes Los Angeles; Miami, Orlando and Tampa, Florida; Chicago, and Atlanta.
In Sacramento, California, Invitation Homes—the nation’s largest owner of single-family rentals—is the top private homeowner, according to a 2018 report from community groups. In East Palo Alto, California, nearly half the housing is owned by a single institution.
That’s by design. When choosing neighborhoods to invest in, Invitation Homes seeks places with “high barriers to entry and high rent-growth potential,” including those that have “lower new supply [and] stronger job and household formation growth,” according to its latest securities filing.
American Homes 4 Rent, another publicly traded rental company, looks for homes selling between $150,000 and $450,000—a price range in which it competes directly with first-time homebuyers.
Tight housing markets allow these companies to raise rents year after year, providing steady returns to investors. But the convenience and services they promise to deliver to tenants can be found wanting.
The Atlantic reported this month on two dozen families who say their corporate landlords charged exorbitant service fees on top of rent, did not answer calls, were slow to repair health-threatening conditions and pushed maintenance work on tenants. In Atlanta, large institutional tenants are 18 percent more likely to evict families than smaller landlords, an Atlanta Fed study found in 2016.
The National Rental Home Council, an industry group representing single-family rentals, or SFRs, disputes that it contributes to the lack of housing supply.
“The SFR industry simply doesn’t have the ability or the desire to unilaterally raise rents in a given market. Rents are determined by supply and demand in the market, the amenities of the home, and the desirability of the neighborhood,” the group said in a statement to CBS News.
The U.S. government was a key actor in turning Wall Street firms into large-scale landlords, according to housing activists. In 2012, then-Federal Reserve Chairman Ben Bernanke first suggested—at a home builders’ conference—that many of the foreclosed properties then on the market could be turned into rentals. That year the government started a pilot program to sell foreclosed homes by the thousands to private investors.
Seven years later, the trend shows no sign of slowing: A group of private investor firms, including Blackstone and Starwood Capital, last month announced a $25 billion investment into residential and commercial real estate.
Meanwhile, another group of companies has turned to home-flipping, rather than renting, as a corporate strategy. Zillow last week announced it was entering the market of so-called iBuyers, companies that purchase houses for sale and turn around and sell them in short order. Zillow competitors Redfin, Opendoor and Offerpad already operate in this space.
Housing and community groups in California wrote to the federal government as far back as 2014, saying that the mass sales of properties were creating a new class of abusive landlords. “[This policy] amounts to market interventions that make investor predation a federally‐sponsored event,” they wrote. But it wasn’t until last year, the Atlantic reports, that the Federal Housing Finance Agency withdrew support from the single-family rental market, figuring the companies could stand on their own.
Slowly, cities are passing new laws to protect tenants in investor-owned housing. Late last year, Los Angeles County temporarily extended rent-control protections and forbade evicting tenants without cause. Oregon is on track to pass statewide rent control, making it the first state in the nation to have such protections.
Activists say much more is needed. “This is the outcome we wanted,” Noah Grynberg, a tenant lawyer in Los Angeles, said of the county’s new protections. “It’s not permanent; this is the first step.”