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Why the Road Is Getting Even Rockier for First-Time Home Buyers
Investors and corporations are buying up houses and turning them into
rental properties. In Charlotte, N.C., that is adding to the hurdles
facing would-be buyers navigating a brutal market.
Bertram Sellers mowing his lawn in the Hidden Valley neighborhood of
Charlotte, N.C. Corporations and real esate investors increasingly are
buying up homes in the area.Credit...Travis Dove for The New York Times
Sophie Kasakove
By Sophie Kasakove
April 23, 2022
CHARLOTTE, N.C. — At her first meetings with clients, many hoping to buy a first home, Sarah Ortiz Hilton runs through a list of warnings.
They may have to offer tens of thousands of dollars over the asking price
only to have those offers rejected anyway, Ms. Hilton, a real estate
agent, tells them. They might have to put up thousands of dollars in nonrefundable fees to get a seller to consider their offer. And if they’re looking for a home for less than $300,000, they might be out of luck.
In part, her cautionary message reflects the red-hot housing market,
rising interest rates and limited supply around the country. But
particularly in booming Sun Belt markets like Charlotte, it also reflects something else: the increasing influence of real estate investors buying
up houses, especially at the lower end of the market, and turning them
into rental properties.
In cities like Charlotte, that trend is exacerbating the shortage of
houses 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 shopping for a first home will be shut out of
the market this year, estimates Nadia Evangelou, senior economist with the National Association of Realtors. That amounts to 15 percent of all first-
time home buyers. In an already daunting market, investor purchasing is
adding to the obstacles.
“The more that investors buy up entire communities and turn them into
rental communities — people don’t have a choice anymore,” said Ms. Hilton,
who moved from New York to Charlotte in 2007, drawn by the opportunity to
buy a house in an affordable market. “They either can’t afford to buy
anymore, or there’s nothing to buy.”
A map compiled by Mecklenburg County, which includes Charlotte, shows a
sea of dots signifying corporate ownership throughout the area; the
exception is a pie slice-shaped segment extending out from downtown
Charlotte — the historically whiter, wealthier neighborhoods often
referred to as “the wedge.” More than 93 percent of homes purchased by corporations as of May 2021 were bought for under $300,000. Many of them
were in predominantly Black neighborhoods.
Image
Sarah Ortiz Hilton, a real estate agent, moved to Charlotte from New York
in 2007 partly because she was drawn by a relatively affordable housing
market.
Image
New homes under construction in Charlotte.
Nationwide, large investment companies remain a small fraction of
America’s home buyers.
“It’s really difficult to make the case 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, executive director of the National Rental Home Council, which represents the single- family rental home industry.
But their share is growing: Real estate investors bought a record 18.4
percent of the homes that were sold in the United States in the fourth
quarter of 2021, up from 12.6 percent a year earlier, according to the
realty company Redfin.
And in some markets, especially in the relatively affordable Sun Belt
metro areas, their share is far higher.
In Charlotte and Atlanta, investors purchased more than 30 percent of the
homes sold in the fourth quarter of 2021, according to Redfin. In
Jacksonville, Fla., Las Vegas, and Phoenix, they bought just under 30
percent.
Housing industry representatives note that these numbers, which define investors as any institution or business, represent purchases by smaller,
local owners, too, who may own just one or two buildings through a limited liability company.
For decades, Marjorie Parker knew all of her neighbors in the east
Charlotte neighborhood of Hidden Valley. Living there wasn’t always easy,
as gang violence periodically rattled the streets. But Ms. Parker found
comfort in the strength of the community and the economically stable, middle-class life it afforded Black families.
The first change she noticed was the fliers outside her door. They offered
to buy her home for cash. Soon her phone began ringing multiple times a
day with calls offering the same.
She was committed to holding onto her home, but for many of her neighbors,
some who were behind on property taxes or who struggled to keep up their properties in their older age, the offers were a welcome way out.
When a house next door from her went up for sale last year, young families poured in to visit. But the house quickly sold to a rental company.
“There should be some cap on that — you can’t have a few people have all
the homes,” Ms. Parker said. “Where regular citizens can’t buy a home is a
sad day in America.”
With apartments in her neighborhood typically renting for $1,500 or more,
Ms. Parker and other longtime homeowners worry that property tax increases
will displace even more residents.
Image
Marjorie Parker walking through an ecological garden in Hidden Valley, her neighborhood in Charlotte. Ms. Parker said she receives multiple offers a
week to buy her home.
Image
As corporations have purchased homes in Hidden Valley, renting them for
$1,500 or more, some residents worry they may not be able to keep up with
the rise in property taxes.
And there are issues for renters, too. Various studies have found that corporate landlords are more likely to raise rents, evict their tenants
and poorly maintain their properties than smaller landlords. One by the Department of Housing and Urban Development in 2018 found that large
corporate owners in Atlanta were 68 percent more likely than smaller
owners to file eviction notices.
Facing a steady encroachment of corporate buyers, some neighborhoods are fighting to stave them off.
Just north of Ms. Parker’s neighborhood, residents in the townhome
community of Avalon at Mallard Creek watched as companies quickly snatched
up homes for sale and converted them to rentals. By last year, over 40
percent of the homes there were occupied by renters, according to Keri
Miller, the homeowners association treasurer.
The association, frustrated at what it said was poor maintenance of the renter-occupied homes, took a vote on a leasing amendment that would
require anyone buying a home in the community to live in the unit for at
least a year before renting it out.
The amendment passed, and by this past February, the percentage of renters
had dropped by 10 percent, Ms. Miller said.
Industry officials criticize these efforts as discriminatory toward
renters.
“Why should a young family who is not in a position to buy a home for
whatever reason be prevented from living in a neighborhood that is close
to schools, close to jobs and other neighborhood amenities?” Mr. Howard
said.
Demand for rental homes is high, and “the companies are coming in and
trying to satisfy that demand,” he said. He added that companies are also addressing the supply shortage by building new rental home communities
from scratch.
But critics say that renting a single-family home comes with far less opportunity for long-term stability and building wealth than owning one.
And the typical starting rent of about $1,500 in the area is hardly
helping meet the needs of renters at the lower end of the market.
Jameisha Wilkes spent months searching for a home that would keep her
close to her daughter’s therapy for autism, her job at a food services warehouse and her mother’s house in the same subdivision.
For sale signs were popping up outside the modest homes in her subdivision
in the northeast suburbs of Charlotte. With the help of a down payment assistance program and financing for a mortgage up to $180,000, she
thought maybe she would have a shot.
But when she searched for the homes on Zillow, she was shocked to find
that many houses in her neighborhood were selling for more than $300,000, double what some had been sold for just about five years before.
Occasionally she would find something in another neighborhood closer to
her price range, but it would be gone quickly.
Image
A home inspector, Dominic Sielemann, looking over a property that Ms.
Hilton brokered.
Image
Pedestrians in Charlotte’s Uptown neighborhood.
“If there’s a house that’s affordable, it’s already gone within 24 hours,”
Ms. Wilkes said. “Most times I don’t even get to make it to the open house before there’s already an offer in.”
Now Ms. Wilkes is busy packing her belongings, but not to move to her own house. After her landlord, Tricon Residential, which now owns more than
1,600 single-family homes across Mecklenburg County, offered to renew her
lease for $150 more a month, she decided to move 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
fighting chance at homeownership, like buying land and offering it for
below market value, and creating legislation to add barriers to corporate ownership. But no specific policies have been proposed.
Efforts to curtail the spread of corporate homeownership are slow going at
the federal level, too. A Senate bill that would close legal, tax and regulatory loopholes “that allow private equity firms to capture all the rewards of their investments while insulating themselves from risk” has
sat in committee since Senators Elizabeth Warren of Massachusetts, Sherrod Brown of Ohio and others introduced it in October.
In the meantime, many home buyers feel like their last hope is a stroke of luck.
On her route as a mail carrier, Ashlee Floyd would take photos of for sale signs to search for the listings on breaks, only to find one after another listed for outside her $300,000 budget. Offers she made on five houses
were rejected.
Ms. Floyd scrimped for a higher down payment — cutting back on Christmas
gifts and extracurricular activities for her two children — and picked up
as much overtime as she could, often working 65 hour weeks.
Two years after she began her search, she found a home she could afford in
a quiet subdivision in northwest Charlotte and an owner who was committed
to selling to a family, not a company. Last week, she closed, paying
$292,000, $27,000 over the asking price.
“It’s over, the nightmare is over,” Ms. Floyd said. “We just have a
foundation now. This is where we’re going to plant our seed and grow from
here. That’s how it feels.”
https://www.nytimes.com/2022/04/23/us/corporate-real-estate-investors- housing-market.html
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