Experts say investment companies are contributing to an already weak housing stock

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Private companies are buying single-family homes across the country, state and Johnson County — a move some experts say is adding pressure to an already tight housing market.

Several large investment companies own hundreds of homes in Johnson County, with the highest concentrations in the Greenwood and Franklin neighborhoods.

Major companies that own homes in the area are Tricon Residential of Toronto, American Homes 4 Rent of Las Vegas, Progress Residential of Arizona, and First-Key homes of Atlanta.

It’s difficult to know exactly how many houses each company owns because companies and their subsidiaries frequently use different names to buy houses. However, each has between 10 and over 40 homes listed on their respective websites for rent in the Johnson County area.

Progress Residential currently has the most, with 41 homes for rent in Greenwood, Franklin and Whiteland on their website as of Friday. Progress owns at least 104 homes in the county, according to property records. American Homes 4 Rent has 38 homes listed on its website, Tricon has 34, and FirstKey has 31.

About 200 single-family homes were for rent in Johnson County on Friday, according to Zillow. By comparison, there were 285 single-family homes for sale in July, according to data from the MIBOR Realtor Association.

Although there are criticisms, business and industry representatives say they fill a void for people who cannot afford to buy a home in today’s market and offer a variety of housing options to communities. They also argue that the main problem is the general housing inventory crisis and growing demand, not their investments.

“Single-family home rental companies are simply responding to the need for quality, affordable housing in communities where resident demand is driving pressure for more housing options,” said David Howard, executive director of the National Rental Home Council in Washington, DC, which represents rental housing investors large and small.

These home rental companies have been around since the 2008 recession when the housing market crashed and many homes were put on the market for purchase. Interest in investing in homes has increased in recent years due to a shift in investment interests, said Sara Coers, associate director of the Indiana University Center for Real Estate Studies at Indianapolis.

There’s money to be made in single-family homes now, more than in offices and retail or the crowded industrial real estate market, she said.

“It’s very competitive, and they can come in and can be cash buyers, they can get what they’re looking for,” Coers said. “So it’s really about fashionable investing.”

Squeeze the market

Coers described several different cumulative effects on the housing market as a “perfect storm,” where there is an imbalance between supply and demand and more people, especially millennials, are coming into the market for housing. first time. In addition to this, investors are also vying for the same type of houses.

Many first time buyers are looking for homes worth $300,000 or less, which are usually older homes. Investors are also buying these houses. Rising interest rates, inflation, supply chain issues and the like are also contributing to the storm.

“Basically what’s happening is we have this limited supply of things under $300,000. And we have all these buyers competing for this small group of homes and that’s driving up prices,” Coers said. “…just anything that comes together and creates a very small supply of homes with a very large demand.”

Ron Rose, a Greenwood realtor, said peak investor interest is $300,000 or less, and inventory in Johnson County is already scarce. Some neighborhoods in Greenwood and Franklin have about 50% rental housing, he said.

The growing number of rental units in older neighborhoods built in the early to mid-2000s makes it harder to serve first-time home buyers, Rose said. It is difficult to compete with the often “invisible” all-cash offers from investors unless a seller explicitly decides not to sell to a company.

“As far as the buy side goes, it’s just that there’s so much pressure,” Rose said. “It’s tough for first-time home buyers, and there’s just no inventory under $300,000. It’s so limited. It’s even hard to talk about it. »

Home rental companies can also reduce tenants’ rent further, usually at a higher rate than what a monthly house payment would cost, Coers said. Most houses for rent in Johnson County cost between $1,500 and $2,000 per month.

Coers said companies can “squeeze” people who pay 50% of their income in rent, but a bank would never give a mortgage that cost someone half their income a month.

“If it’s $2,400 rent versus a $2,400 house payment, the qualifying standards are completely different,” Coers said.

This system can force people to stay as tenants, she said. People who can’t afford a home yet will simply look to rent a home that matches their interests, she said.

“It just forces more people, when they can’t buy a house anyway, when there’s not enough supply, when they can’t compete, it forces them to become renters,” Coers said. .

Howard said the state of the housing market also affects rents. Rent is usually determined by local housing market conditions. He said the National Association of Realtors recently estimated that the housing market is undersupplied by 7 million units, leading to higher prices and rental rates.

“The rent can go up or down depending on the relationship between supply and demand. Over the past decade, the supply of housing — both ‘for sale’ and ‘for rent’ — hasn’t kept pace with demand,” Howard said.

The company says the impact is “tiny”

At Tricon Residential, the company prides itself on putting its residents first, said Tara Tucker, vice president of marketing communications at Tricon.

She said the company financially helps its residents buy a home, so they don’t have to be tenants.

“We really care about our residents…we don’t want anyone staying in a rental home longer than necessary,” she said.

She also said the number of homes Tricon bought was “tiny” in the grand scheme of the housing supply issue. The company is trying to increase supply rather than withdraw from it, she said. Tricon is currently developing homes, primarily along the Sun Belt in the southern and southwestern United States, but not in the Midwest.

Rental housing investors say their practices don’t leave a big impact on the market itself. Howard said owner-occupied housing has increased 11% over the past five years, compared to a 1% increase in rental housing, according to Census Bureau data. He also said home buying, in general, increases more among young people.

“Rental housing is a smaller share of the overall market today than it was five years ago,” Howard said.

Fellow investment firms Progress Residential, American Homes 4 Rent and FirstKey did not respond to interview requests or deferred questions to NRHC.

A solution?

Some homeowners associations across the state have tried to halt the increase in rental housing in their respective neighborhoods, Coers said. Some add that new home buyers should live in a home for at least a year before putting it up for rent. This can deter investors, who would not live in a home once purchased.

Individual sellers can also decide not to sell to a company. Rose recently asked a client to receive three business offers and three homeowner offers. His client chose to sell his house to a local family because he didn’t want his neighborhood to turn into a rental neighborhood.

Coers also said the housing market could eventually naturally push investors out as interest fades over time.

“There’s not a lot of rent that people can afford, especially in a place like Indianapolis, you know, where the median household income isn’t very high,” Coers said. “So we’re going to see people who have reached the upper limit of their ability to pay rent, and they’re not going to rent these places anymore.”

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