In September 2024, the Texas House of Representatives held a hearing on a number of interim charges issued by Lieutenant Governor Dan Patrick to investigate as a priority for the upcoming legislative session. One of the charges centered around the impact of institutional investors on housing affordability and homeownership in the State of Texas. As housing advocates, Texas Housers is enthusiastic about the prioritization to address the mounting housing affordability crisis in the state of Texas in the upcoming legislative session.
Community Navigator Taylor Laredo delivered remarks before the House Business and Industry committee at the September 12 hearing. He examined the specific charge about the impacts of institutional investors in Texas housing markets within the broader context of growing housing affordability challenges for low-income renters and homeowners – who are the only income group facing an absolute deficit of affordable housing. You can view his full testimony here.
Those who are unfamiliar with institutional investors and their impact on affordable housing may ask who exactly these investors are. What are some potential impacts that these large entities can have on the broader housing markets where they exist and what can housing advocates do to ensure that our communities are the recipients of beneficial – rather than predatory or parasitic – capital investment?
Large Institutional Investors – Who are they?
Rental property ownership at-large is changing. There is a decreasing amount of sole proprietors in the rental housing market, and an increasing share of the market that is composed of joint proprietors, acting under corporate structures such as LLCs or LPs. According to the National Association of Realtors in 2021, 28% of home purchases in Texas were made by large institutional investors.
Urban Institute notes that there is no universally agreed upon definition of a large institutional investor, such as an exact number of properties they own or how they are incorporated, which makes research into their patterns of behavior difficult. There is also a lack of data on property ownership, including limited parcel level data, which makes it difficult to determine who owns a property and whether that property is owner- or renter-occupied. For these reasons, a ‘data desert’ exists on this issue that warrants urgent policy change to improve our understanding of large institutional investors and their impacts.
Following the Great Recession of the late 2000s, there was a spike in large institutional investor activity in the housing market, especially in geographic regions that were particularly distressed by the foreclosure crisis. Interestingly, many large institutional investment firms avoided the single family rental market before the foreclosure crisis, due to difficulties and costs of managing and acquiring these properties. Emerging advancements in technology and sophisticated management platforms, such as RealPage, have enabled large institutional investors to make a foray into the single family rental market.
Recently, the market of large institutional investors in single family housing has seen a lot of industry consolidation – with firms merging and acquiring one another. Large institutional investors have also turned to a build-to-rent model in recent years, through collaborations with builders and developers. Build-to-rent communities are entire subdivisions of single family homes that are only meant for rental housing, not homeownership opportunities. These rental homes are often priced at a point where they are affordable to middle-income households, but low-income and especially very low-income families are typically priced out of these opportunities.
Although some sources, as noted above, have stated there are not clear patterns of buying activity amongst large institutional investors, emerging research suggests that institutional investors are likely to concentrate in quickly growing middle-income areas that were hit hard by the Great Recession but remain credit challenged, and neighborhoods with more Black and Brown residents.
What are the Impacts of Large Institutional Investors?
The purchasing patterns of large institutional investors in the single family rental market can present barriers to prospective individual homebuyers, as they are able to outbid them with attractive all cash offers and secured lines of credit. While studies are still unclear on the effects of large institutional investor activity on homeownership opportunities, anecdotal evidence and observation shows us that their purchasing tactics can block out first time and low income homebuyers and deplete housing stock that would be available to prospective homebuyers.
For current homeowners, large institutional investors may make all cash offers that are especially attractive to homeowners in distressed neighborhoods who may not have even considered selling their home before, having the potential to rapidly alter the composition of neighborhoods from owner-occupancy to renter status. In targeting distressed neighborhoods, large institutional investors also often waive inspections, which can make offers to unsuspecting homebuyers more attractive. While these buying patterns can see home values in the neighborhood appreciate, the current neighborhood’s residents may not reap the benefits, as rising tax rates can often make areas too costly for original community members. Moreover, the homes purchased by large institutional investors may never return to owner-occupant status, as one study found that 61% of institutional investors sell their properties in bulk.
For the tenants that move into properties owned and managed by large institutional investors, studies show they are at higher risk of displacement and living in declining conditions. Emerging research suggests that large scale landlords act more adversely to tenants’ interests than smaller “mom and pop landlords,” through practices such as utilizing eviction court as a rent collection mechanism, rather than directly negotiating with a tenant to settle delinquent or unpaid rent in a timely and fair manner. This practice of rapidly and repeatedly filing evictions slows down the efficiency of our justice of the peace courts and presents significant barriers to tenants accessing future housing. Furthermore, there is anecdotal evidence of large institutional investor landlords charging excessive fees, failing to complete repairs, and even waiving their responsibility for completing maintenance repairs entirely.
What can we do about it?
First, we need a better understanding of the full scope of risks and benefits posed by large scale institutional investment in the single family rental market.The gap in data on the issue must be resolved. We call for improved data on institutional investors in housing markets in the form of local rental registries, or other measures to increase transparency on corporate ownership structures so that we can more clearly understand who owns what in our state beyond just the name of the owning entity.
The Houston Chronicle recently published a searchable map for exploring property ownership in the state of Texas. While this is a useful and interesting tool, it highlights the major barriers the public faces when trying to investigate who owns what. This map pulls from a single data source, a website called Regrid, which packages publicly available property ownership information such as the name and mailing address of the owner. The tool then uses these names and mailing addresses, with limited data cleaning, to match together mailing addresses of properties with the same owners. However, institutional owners utilizing LLCs often use single-property LLCs to isolate risk, which makes it impossible to connect properties by owner name. The best practice for uncovering ownership networks is to use mailing addresses to connect owners, however, without a very detailed review and even with extensive data cleaning, the smallest errors can result in this tool failing to connect property owners by mailing addresses. Without these essential checks, this too can miss many of the corporate connections that more detailed, resource-intensive tools capture, such as New York City’s Who owns what in nyc? And Oakland, CA’s Evictorbook, which each take into account ownership information from corporate filings and other public reports. The Chronicle’s tool needs more resources to show the true scope of institutional property ownership in Texas. We need better public data, including rental registries and beneficial ownership information, to truly understand this issue.
In light of lessons learned from recent instances of large-scale housing instability in the wake of the Great Recession and the COVID-19 pandemic, we also call for taking another look at the balance of landlord and tenant law in Texas, and contemplating fair and common sense protections for tenants to level the playing field. Measures that will certainly aid tenants against housing instability include passing a reasonable right to cure, and sealing outdated evictions or eviction records where the landlord did not prevail.
Lastly, as we discussed in our previous blog, the Texas Comptroller’s Report “The Housing Affordability Challenge” rightly notes that the shrinking supply of low rent units is amongst the greatest housing challenges to Texas. The Comptroller found that Texans with extremely low-incomes are the only income group facing an absolute housing shortage. In order to address this, we must expand the housing supply that is available to the lowest income renters. We see an opportunity to contribute more state funds to support the effort to alleviate the cost burden of rent on low income households through the creation of new housing that will be affordable to Texans with the lowest incomes.
