Watchdog report: Institutional investors ‘may have contributed to increasing home prices’

A new report from the Government Accountability Office (GAO) concluded that while institutional investors may have contributed to rising home prices since 2009, the actual impact they have had on homeownership opportunities is more difficult to assess.

Large institutional investors typically emerged following a raft of defaults and foreclosures stemming from the 2007-08 financial crisis, putting inventory on the market from 2007-09. The investors, such as ex-Blackstone Group company Invitation Homes, “bulk-purchased” foreclosed homes, with many converting them into rental housing, and with a distinct advantage over smaller investors.

“Aided by access to capital through various sources, institutional investors had a funding advantage over smaller investors at a time when mortgage lenders were generally reducing lending,” the findings said. “Additionally, technological advancements allowed companies to acquire and manage large portfolios of single-family homes more easily.”

While initially relying on bulk purchases, institutional investors eventually shifted more toward smaller-scale purchases, merging with smaller investors or investing in the construction of single-family homes to eventually rent them out.

“Studies GAO reviewed found that no investor owned 1,000 or more single-family rental homes as of late 2011,” the results said. “However, by 2015, institutional investors collectively owned an estimated 170,000-300,000 homes. As of June 2022, institutional investors of varying sizes made up a large portion of the single-family rental market in many cities, particularly in Sunbelt states.”

However, the full impact of these holdings on homeownership opportunities was difficult to determine, and the report makes no conclusions about what impact such investors may or may not have had on the homebuying market today.

The information that could allow for such conclusions is “unclear because data are limited and there is no consistent definition of institutional investor,” the report said.

In a recent episode of HousingWire Daily, HousingWire Lead Analyst Logan Mohtashami examined remarks from a politician who accused institutional investors of buying up large swaths of inventory.

“They don’t have that kind of capital,” he said, adding that Blackstone Group owns roughly 0.05% of single-family homes in the U.S. today.

A recent analysis by Resi Club, using Parcl Labs data, found that among the 100 largest metro housing markets, Oxnard, CA, San Francisco, CA, San Jose, CA, San Diego, CA and Honolulu, HI had the highest share of investor homeownership, all at roughly 20%. The vast majority of these investors are small investors, owning less than 10 total homes. Institutional investors (1,000 or more single-family homes) only own around 1% of total U.S. housing stock, according to Parcl Labs.