How did single-family rental housing go from a financial backwater to an institutional asset class in just a few years? Since the 2008 financial meltdown, over 4 million American families have lost their homes to foreclosure; millions more remain homeowners, but hold mortgages that exceed the value of their homes. In the hardest-hit areas, communities have struggled with collapsed property values, vacant homes and fiscal strain for several years now. The foreclosure crisis has also increased rental demand as former homeowners become tenants and others delay ownership due to bad credit, high debt burdens, and tightened underwriting. This post-crisis context signifies a new opportunity for investors. Since 2012, leading private equity firms like the Blackstone Group in New York and Colony Capital in Santa Monica have taken advantage of low property values, increased rental demand and the consolidation of unprecedented amounts of single-family homes under bank and government-sponsored enterprise (GSE) ownership. Such investors have poured an estimated $20 billion into buying 200,000 properties and converting them to rental housing. Long characterized by local “mom-and-pop” ownership, today the single-family rental market is becoming institutionalized as large, well-capitalized investors assemble portfolios of thousands of homes across the country, primarily in Sunbelt cities like Phoenix, Las Vegas, Los Angeles, Tampa and Atlanta. A troubling aspect of this trend is that investors are often able to acquire properties at discounts that, if applied to reducing mortgage principal for struggling homeowners instead, would have kept more properties under local ownership. While the foreclosure crisis has drained wealth out of homes and communities, today those properties form a pipeline for financial products including stock shares and bonds based on securitized rental income. American Homes 4 Rent in Agoura Hills, the industry’s largest player after Invitation Homes in Dallas, does both. With 27,000 homes in 22 states including California, American Homes is one of the first single-family real estate investment trusts, which trade publicly on the stock market as a means of leveraging capital. Like Blackstone’s Invitation Homes, American Homes has started issuing bonds based on the securitization of rental income. In May, it released a $482 million bond backed by the rental income from 3,871 single-family homes in Florida, Texas, Georgia, Arizona, and Nevada. Multiple government agencies have helped foster the single-family rental industry. In 2012 the Federal Housing Finance Agency piloted bulk sales of REO (real-estate owned by the bank after foreclosure) Fannie Mae properties to investors to get these assets off its balance sheets and stimulate private investment in single-family rental. Now that foreclosures have dropped to their lowest levels since 2006, investors are acquiring non-performing loans to expand their holdings. Government agencies also have been helpful here: since 2012, the Department of Housing and Urban Development’s Distressed Asset Stabilization Program has auctioned off nearly 100,000 mortgages worth $8.8 billion, nearly all to for-profit entities based in the private equity and hedge fund sectors. The acquisition of non-performing loans by investors aiming to amass greater property holdings raises concerns that borrowers seeking loan modifications will instead find themselves renting the homes they once owned. How will this paradigm shift in single-family renting affect tenants and communities? Despite market exuberance about single-family rental, there is no precedent for this model, so we know little about its social and economic consequences. This is why the Right to the City Alliance, a nationwide network of community organizations, interviewed Invitation Homes tenants in Los Angeles, Riverside, and Atlanta this year. Tenants expressed concerns about shoddily completed renovations and maintenance, unaffordable rent increases, and data systems that initiated eviction notices after flagging on-time rent payments as late. These issues suggest a larger question about the accountability of landlords with whom tenants have no face-to-face contact. In California, these tenants face unique risks, as they have fewer protections than tenants of multifamily properties. Yet the diffuse, low-density nature of single-family housing presents a challenge for tenants to communicate and organize when corporate landlords violate fair housing laws or treat residents unfairly. Furthermore, the paradigm shift in single-family rental represents a further enrichment of the same kinds of financial interests that brought down the housing market in the first place, shutting potential homeowners out of opportunities for wealth creation. Thankfully, the government is not only interested in aiding the development of the single-family rental industry. The Treasury’s inter-agency working group recently invited representatives from Right to the City to share their research on Invitation Homes. We hope this will help inform proactive policies and regulations that serve to promote the common good, and avoid destabilizing communities still struggling to emerge from the effects of the foreclosure crisis. After all, while Wayne Hughes, the leader of American Homes, made his fortune in the storage space business, houses are quite different than storage containers: occupied by people, not the jetsam of modern life, home remains the enduring heart of family and community well-being. Desiree Fields, Ph.D. is an urban geographer at the University of Sheffield, U.K., and primary author of “The Rise of the Corporate Landlord,” a 2014 report by the Right to the City alliance in New York.
