Real estate investors are increasingly targeting low-priced homes in the U.S., with purchases hitting a record 26.1 percent of sales in the fourth quarter of last year.
The surge comes as lawmakers—including Senator Jeff Merkley, an Oregon Democrat, and Representative Adam Smith, a Washington Democrat—propose legislation aimed at curbing investment firms' influence on the housing market.
The rise in investor interest, particularly in affordable-housing sectors, points to a growing concern over the accessibility of homeownership for average Americans. The End Hedge Fund Control of American Homes Act of 2023, which was introduced in December, seeks to address the concern by limiting hedge funds and private equity firms from buying single-family homes, a move that could reshape the housing landscape amid ongoing supply shortages and rising prices.
Institutional interest appears undeterred by congressional scrutiny, according to a Redfin report issued Wednesday, revealing the increase in investor activity, particularly in low-priced home segments.
Investors Snap Up Almost 1 in 5 Homes
According to Redfin's analysis, while institutional investors purchased 26.1 percent of low-priced homes in the U.S. during the fourth quarter, they bought 18.5 percent of all homes that sold in the same period. That's up from 18.1 percent in the fourth quarter of 2022.
Of the 18.5 percent, single-family homes (standalone residential structures designed for one household to live in) accounted for 68.6 percent of purchases, while condos made up 19.2 percent.
For context on just how active these institutions have been, in Miami, investors bought 31.5 percent of all homes sold in the fourth quarter.
While anyone can purchase an investment or rental property, the biggest institutional players include Progress Residential, which owns more than 95,000 single-family homes, according to its LinkedIn page, Invitation Homes (owns 78,823 single-family homes), American Homes 4 Rent (owns 59,092 homes) and Tricon Residential (owns about 38,000 single-family homes in the U.S. and multi-family apartments in Canada).
Their focus, according to Redfin, is mostly in cities with high populations like Chicago, where investor purchases increased 20.9 percent year over year, and Riverside, California, where purchases increased 25 percent year over year.
It's a dynamic that raises prices and limits the availability of homes to first-time and lower-income buyers, Merkley said, and transforms potential family residences into investment vehicles.
The legislative efforts by Merkley and Smith aim to counteract those market forces by introducing measures that would restrict large institutional investors' ability to purchase single-family homes. The bill, if passed, could significantly impact the housing market by ensuring more homes are available for individuals and families, rather than serving as profit generators for large investment entities.
"The purchasing of single-family homes by hedge funds, especially in the current housing market, serves only to make profits for the investors and provides no value to the communities where these homes are located," Merkley said in a December statement.
"People should not have to go up against hedge funds when they are trying to buy a home in their community," he said. "Banning hedge funds from the single-family housing market will help enable more families the opportunity to purchase a home and combat the growing large investor landlord model."
By prohibiting hedge funds from owning single-family homes and mandating a reduction of their current holdings by at least 10 percent annually over a decade, the legislation aims to gradually restore the balance in favor of individual homeownership. Further, it introduces a disincentive for hedge fund involvement in the housing market through a tax penalty of $50,000 per home per year, accelerating the return of properties to potential homeowners.
The bill also proposes a 50 percent tax on any new single-family home purchases by institutions, with the collected penalties designated for down payment assistance programs, directly benefiting families looking to buy homes previously owned by the funds.
Through the measures, the bill seeks to reduce hedge fund ownership of single-family homes to zero within a 10-year timeframe, fostering a more accessible and fair housing market.
Newsweek has reached out to Merkley and Smith for comment by email on Wednesday afternoon.
Uncommon Knowledge
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Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
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Aj Fabino is a Newsweek reporter based in Chicago. His focus is reporting on Economy & Finance. Aj joined Newsweek ... Read more
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