Atlanta and the Future of American Housing
As investors buy up single family houses to rent and corner out homebuyers, there's an opportunity to think again about housing policy.
Across America, a new face of home ownership has arisen, that of the institutional investors. They are expanding their ownership to not just apartments, which they have traditionally owned, but to single family homes, in bulk, with the goal of renting to the type of people who would normally purchase them. Causes ranging from student loans to simply getting outbid by private equity have many middle class would-be homebuyers stuck renting instead.
One of the most well-known institutional investors in single family housing is Invitation Homes. Founded in 2012, it is the largest owner of single family homes in the United States. Despite promising reasonable prices and amenities, in practice Invitation Homes is not only more expensive than the average rental, but has been involved in various scandals regarding the quality of the homes it offers. With 12,556 single family homes at an average rent of $1,600 per month, the specific market of Atlanta, Georgia makes up the largest individual contribution to Invitation Homes’ revenue and is the place where it has the most single-family ownership overall.
The issue with Invitation Homes is not necessarily the quantity of the houses they possess, but the gap between its above-average rental prices and the actual quality it provides. While its rental properties make up only a small portion of Atlanta’s housing market, as according to the Census Reporter, there are around 2,364,761 housing units in the Atlanta Metropolitan area, but they and others under similar ownership make a suggestive case study of the institutional investor-owned rental experience.
Using the listing of housing available to rent in Georgia from Invitation Homes website, it is possible to scrape together the data, including rents, and cross compare them to the median rent of not only Georgia broadly, but of Fulton County, and even the individual tracts within the counties that make up suburban Atlanta.
Comparing median rent per bedroom to the average in both Georgia and Fulton county, Invitation Homes rentals are, as reported elsewhere, expensive.
That Invitation Homes homes are more expensive even at the tract level shows that the issue is bigger than just purchasing single family homes in affluent communities and jacking up the price. For example, click through for a comparison of average rent for a three bedroom in a given tract, versus the market rent of a three bedroom house for rent by Invitation Homes.
It is not just major players like Invitation Homes; there are plenty of smaller players, with less than 100 houses each, which are still supported by a large source of capital. Unfortunately, despite being smaller in scale, it is not uncommon for the little guys to behave just as unfairly as their larger counterparts.
The case of Jar House, a partner of Najarian Capital (which received PPP loans during the Covid-19 crisis), is one such example. Jar House operates by buying distressed properties, typically foreclosed ones, and either flipping them to sell to a buyer at profit or renting them out for a higher-than-average cost. Back in 2019, a broken septic tank was discovered in a property bought from Jar House. The company had not notified the buyer. Even worse, prior to reaching a settlement, Jar House argued that because they don’t actually live in the houses they sell, they are not liable for any defects that the properties may have, despite ostensibly renovating them to flip. Again, in 2018, Jar House sold a property with a major mold infestation, without informing the buyer and requiring the buyer to sue due to concealment of the damages.
For another institutional renter example, take the Canopy Development Group. Despite the innocuous website, it turns out the owner of the LLC, Rick Warren, used this entity as yet another front to act as a slumlord. Several years ago he was arrested for acting as an absenteelandlord and for general housing code violations.
While only a sample of the types of players that make up Atlanta real estate, it is telling that these incidents are common at both a small scale, regional scale, and national scale. These players don’t want a stable housing market in the slightest; they want to make a profit.
Within its S11 registration, Invitation Homes frankly states the market conditions it prefers when buying single family homes:
We invest in markets that we expect will exhibit lower new supply, stronger job and household formation growth and superior NOI growth relative to the broader U.S. housing and rental market. Within our 13 markets, we target attractive neighborhoods in in-fill locations with multiple demand generators, such as proximity to major employment centers, desirable schools and transportation corridors.
Put more simply, Invitation Homes likes regions that grow but don’t build any housing, and it prefers a market that stays that way. In general, any landlord whose properties consist of single family housing implicitly has this mindset—profit is found where supply is fixed and demand is growing.
Fortunately, the market doesn’t have to be like this. There are options available to solve the issue of large scale investment in housing for families, and further light can be shone on these industry practices.
On the regulatory side, beyond just bluntly regulating institutional ownership of housing, improving the parcel reporting capacity of states and counties would make it easier to track ownership. On corporate registries, it should be required that all LLCs a given corporation controls should be linked to it and to each other, so that a large institutional entity can’t hide its ownership of properties via nesting them in different shell companies.
On the housing side, the simplest solution would be to build more housing. This may involve upzoning to allow more multifamily housing, or at least more dense single family homes. Or perhaps it would mean allowing the common development of accessory dwelling units. Regardless, building more housing helps everyone, as it makes it easier for someone to own a home, with all the security that comes with it.
Institutional investment in single family housing on the one hand, and rapid increase in the housing supply on the other, both present a distinctive problem, in that, largely by accident of government policy, the value of one’s owned house is the primary way that many American households build wealth. Of course, if housing were to be commodified, value would be suppressed. As more housing is built, alternative vehicles for building wealth will be required to ensure that as one vehicle for wealth acquisition is removed, another is provided.
At the end of the day, every American should be able to have housing in the method they like, whether as a renter or a homeowner. Recognizing the problems of the moment and reforming housing markets to make this the case will make everyone better off.
Lars Schonander is a software engineer at Lincoln Network. This New Urbanism series is supported by the Richard H. Driehaus Foundation. Follow New Urbs on Twitter for a feed dedicated to TAC’s coverage of cities, urbanism, and place.