Publication date: January 3, 2024, at 6:38 AM
Jessica Moreno and Her Family’s Experience in Home Buying
Jessica Moreno and her family happily live in Charlotte, North Carolina, until new owners bought the property where their rented mobile home was located, resulting in changes in services and significant price hikes.
Moreno said, “Where were we going to find a $300 rent? Nowhere. That’s why we had to leave. I constantly see that when companies buy homes, the poor have to leave because rents and services go up; that’s how it is.”
The experience of her family drove Moreno to become a community organizer at Action NC, a group working to combat inequality and poverty. She said, “We probably don’t realize that we can push for laws to change things.”
Wall Street Firms Entering the Residential Rental Market
Wall Street firms entered the residential rental market for families after the housing crisis in 2008 by purchasing refurbished homes. Since then, their influence has continued to grow, and the number of corporate owners today is significant across the housing system in the U.S.: single-family and multi-family housing, manufactured housing like mobile homes, subsidized housing, and student housing.
Many entities, such as investment funds, have been able to leverage their financial resources to buy refurbished homes in bulk. Instead of selling them, many investors opted to enter the rental market, providing a vital service at a time when many families faced credit challenges.
By June 2022, institutional investors owned 3% of all single-family rentals across the country. However, in the most accessible markets, their ownership percentage was substantial, reaching 20% in Charlotte, according to figures released by the Urban Institute.
The Impact of Corporate Owners on Neighborhoods and Tenants
Large corporations especially own properties in neighborhoods where they believe demand will increase so they can charge higher rents. There is some overlap between these geographic factors and areas with high Latino populations, according to Madeline Bankson, housing research coordinator at the Private Capital Contribution Project.
In Charlotte, Moreno said, “I’ve seen many families forced to live in one home because they need to have a significant income to pay the rent.”
These institutional investors are “not only buying homes but also developing entire communities to rent them out, and I see that as a significant risk,” according to Moreno.
Long-Term Consequences of Corporate Property Purchases
Although massive corporate property purchases have helped stabilize the housing market after a significant crisis period in the U.S., many experts assert that there are long-term consequences.
While there are companies buying apartment buildings and claiming they will make repairs to the homes, thus requiring people to leave, according to Mario Fonseca, an IT specialist in Costa Mesa, California.
When maltreatment occurs by the landlord, “most Americans do not have enough protection to safeguard tenants,” according to Bankson.
Legislation to Regulate Corporate Real Estate Activity
Many lawmakers have introduced bills to regulate or restrict the activities of Wall Street firms in the real estate market.
In 2022, California congressional Democrats Ro Khanna, Katie Porter, and Mark Takano introduced the Stop Main Street Homeowners Act to limit the role of institutional investors in the single-family home market and attempt to curb speculative investment.
If approved by Congress, the law would impose a tax on new and existing single-family rental purchases by institutional investors. It would also prohibit the purchase and securitization of mortgages held by large institutional investors using debt to buy and rent out single-family homes through Fannie Mae, Freddie Mac, and Ginnie Mae.
Introduced
Representative Adam Smith and Senator Jeff Merkley have introduced bills in both chambers of Congress that prohibit investment funds and other investors from owning single-family homes.
Investor Revenues and Additional Costs for Tenants
From a business perspective, these companies’ investments have been highly lucrative. This is why a lot of dollars are flowing into this market, and companies are ready to increase the number of homes they own, according to Elora Raymond, an urban planner and assistant professor at the College of Architecture and Planning at Georgia Tech.
Banskson said, “Many states have taken steps to require these companies to divest from their investments and stop competing with people who want to buy their homes.”
According to Banskson, the private equity model involves buying “underpriced assets” and then seeking a return for investors of 15 to 20% in a short period, typically ranging from three to seven years, which is double the return of other investments.
According to Banskson, this can lead to very negative outcomes for tenants, as companies increase revenues and reduce costs by raising rents and evicting lower-paying tenants, and by adding more fees and fines on everything from trash and sewage to water and parking, among others. Moreover, landlords can impose significant penalties for late rent payments or other contract violations.
Potential Future for Tenants and Buyers
Latinos are particularly important to the real estate market; the Urban Institute predicts that about 70% of new home buyers in 2040 will be individuals of Latino descent.
Samuel Kinney, senior policy analyst for UnidosUS, the largest Latino civil rights and advocacy group in the country, said, “The problem is that there is a huge housing shortage – Freddie Mac estimates the gap to be around 3.8 million units. We are not building affordable homes for those trying to purchase their first home.”
Despite the cooling housing market, investors remain active, having purchased 26% of single-family homes sold in June 2023, according to data analytics firm CoreLogic.
UnidosUS has launched the “Homeownership Means Equality” initiative, aimed at helping create 4 million new homes for Latino individuals by 2030.
But for many, the situation is tough. Stella Inciarte, a Venezuelan sales representative living in San Jose, California, said that if she wanted to buy something soon, she would have to leave, “perhaps buying in Elk Grove or another city closer to Sacramento, because here in San Jose it’s almost impossible … I will have to sacrifice and get used to a new city,” she said.
In North Carolina, Moreno and her husband, after long saving, managed to buy their first home, a house that cost them over $175,000 and was built 100 years ago. Moreno said, “It’s not in good condition, but it was within our budget … there’s always a risk of losing the home because properties in this community are rising and taxes are rising as well, we are 45 minutes from Charlotte, and many people are coming so companies are buying too.”
According to Moreno, she regularly receives calls from companies asking if she wants to sell her home. She said, “It’s an old house, with many defects, but they still want to buy it from me. The problem is I will never be able to get something similar or better to what they are offering me. It’s a nightmare.”
A previous version of this story was originally published in Noticias Telemundo.
Source: https://www.aol.com/wall-streets-housing-stock-leaves-223800497.html
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