The following four articles describe the actions and impacts of institutional investors who have penetrated the housing demand markets in Portland and Seattle, using their superior buying power to seize a large share of homes for sale. These are excerpted for sake of brevity.
street roots Portland, Oregon
Independent homebuyers can’t compete with investors
Amid tight housing market, investors snap up homes in record numbers. Portland renters and prospective non-investment homebuyers are feeling the impact.
by Melanie Henshaw | 13 Apr 2022
Like most major metropolitan areas in the United States, the Portland metro is experiencing inflation across the board. One of the biggest price increases affecting Portlanders’ wallets is the exploding cost of housing, leaving renters and homebuyers in a lurch.
Real estate investors purchasing homes is a major issue for prospective single-family home buyers. Investors are purchasing a significant number of homes, according to data from Redfin, a real estate brokerage that publicizes data on the housing market. Non-investment buyers struggle to compete with their resources.
Across the United States, real estate investors purchased nearly one in five, 18.4%, of all homes sold in the fourth quarter of 2021.
In Portland, investors purchased 12.6% of homes sold in that same period, a 46.3% increase from 2020, at a total value of $591,449,258, according to data from Redfin. The numbers are significantly higher across the Columbia River in Clark County, Washington, where investors were behind between 41% and 67% of all home purchases in 2021 depending on zip code.
The rising price of rent and real estate incentivizes investors to continue buying. As individual buyers are priced out of the real estate market, they continue renting in a market where prices have also skyrocketed over the past two years.
First-time homebuyers and other traditional, low down payment (less than 20% down) buyers often struggle to compete with the financial resources of real estate investment companies. Investors are known to purchase homes sight-unseen, waive inspections and appraisals and make all-cash offers well above the asking price. The appraisals and inspections non-investment buyers typically request take time, and investors offer the alluring option of a quick-close, cash sale without contingencies.
Investors buy homes with inflated offers that non-investment buyers struggle to compete with, then rent the homes or flip them for profit. Those who cannot compete in the housing market are forced to rent. As renters with few options are unable to afford to exit the rental market, landlords are able to continue increasing rent.
Local buyer companies in the Portland area, such as Cascade Home Buyers LLC and Spartan Redevelopment, are house flippers. A sale is considered a flip if the home is bought and sold within one year. “Spartan Redevelopment specializes in the purchase, restoration, and resale of single-family homes in the Portland metropolitan and surrounding markets,” reads Spartan’s website.
Flippers aim to “buy low, sell high” and typically invest in low and middle-income neighborhoods, the same markets where first-time buyers are struggling to get a footing.
Amid increasing materials costs, profits for flippers decreased last year. To mitigate the loss in profits, according to a report by CNBC, flippers are known to sell to other real estate investors who then rent out the homes, as rentals don’t require high-end materials, subsequently further decreasing housing inventory.
Available housing inventory is a major problem. Low inventory contributes to high prices and incentivizes investment, as there are not enough homes to meet the demand. Decreased construction caused by the COVID-19 pandemic exacerbated the problem.
“The supply shortage is also an advantage for landlords, as many people who can’t find a home to buy are forced to rent instead,” Bokhari said. “Plus, investors who ‘flip’ homes see potential to turn a big profit as home prices soar.”
While low inventory is a boon for real estate investors and landlords, it compounds the misery of non-investment buyers and renters. Across the nation around one in 10 homes sit vacant, according to U.S. census data. Some vacancy is necessary to maintain an inventory of homes for rent and for sale. A “healthy” rental vacancy rate is 2-3% for homeowners and 7-8% for rentals, according to Bloomberg.
Extremely low vacancy rates work in real estate investors and landlords’ favor, as it indicates there’s a high level of desirability to live in the area, allowing them to increase prices as prospective buyers and tenants compete for the available inventory.
Despite skyrocketing housing costs and a worsening shortage of available housing nationwide, there are no large-scale efforts to alleviate the shortage at a federal level. As rents and home prices continue to climb, fears of a “renter’s economy” deepen as investors’ share of the market continues to grow.
“One of the reasons housing prices have gotten so out of control is that corporate America sensed an opportunity,” Sen. Brown said before the Committee on Banking, Housing and Urban Affairs. “Private equity firms and corporate landlords and investors saw a shortage, and they saw a captive market. They bought up properties, they raised rents, they cut services, they priced out family homebuyers, and they forced renters out of their homes.”
PORTLAND BUSINESS JOURNAL
Investors bought one in 10 Portland-area homes for sale in the second quarter
The Portland metro had more investors buying homes compared to last year
By Jonathan Bach – Staff Reporter, Portland Business Journal
Aug 6, 2021
The Portland metro recently saw investors clamber over one another to buy homes compared to last year. But the local appetite failed to match a broader, national craving among investors for residential deals.
Investors accounted for one in 10 (10.3%) Portland metro home sales in the second quarter of 2021. Institutions or businesses that buy residential real estate, picked up 862 homes in the Portland metro at a median price of $490,000 in the second quarter of 2021. Of those, 69% were cash-only purchases.
Home prices have been rising in the Portland area for years. In June, the overall Portland metro median sale price — and that’s for everyone, not just investors — stood at $521,000, according to the Regional Multiple Listing Service.
Buying below the overall median price suggests investors are purchasing cheaper homes that need patching up, in order to flip them for quick gains, says Sheharyar Bokhari, Redfin senior economist.
The Oregonian
Big out-of-town money buys up Portland rentals
Updated: Jan. 09, 2019, 8:13 p.m. | Published: Mar. 12, 2016, 9:00 a.m.
By Luke Hammill | The Oregonian/OregonLive
Judith and Cliff Allen have owned the modest Marcus Apartments in Portland’s Irvington neighborhood since 1979. The couple now wants to build another 12-unit structure on the parking lot in front of the building. The surprising thing, said Brian Emerick, former chair of Portland’s Historic Landmarks Commission, is that they didn’t just knock down the old building and put up something bigger and fancier – and a lot more expensive.
“Almost no developer would have saved the existing building,” Emerick said. “They would have just knocked it down” and maximized the lot’s value. “There are very few of us [mom and pop landlords] left,” Judith Allen said. If local landlords are on the way out, it’s because they’re being replaced at a surprisingly fast clip by large institutional investors.
In 2015, the Portland area saw more than $1.7 billion in sales of large multifamily properties, more than double the previous record set in 2007, according to data collected by the commercial real estate firm Jones Lang LaSalle. Much of that money comes from pension funds, banks, unions, insurance companies or real estate investment trusts.
Portland didn’t used to be the kind of market where big, national pension funds came hunting for real estate. But low interest rates – which make it hard for funds to make money on traditional investments – and the Portland area’s tight rental market have shifted the landscape. Investors’ unceasing quest for yield puts upward pressure on rents.
Between October 2009 and October 2015, 39 percent of sales of buildings with 79 or more units went to institutional investors, and the trend has accelerated in the past two years.
The recent sale of the 63-unit Lower Burnside Lofts on the east side for $18.5 million to Boston-based Berkshire Group suggests investors are willing to perhaps “compromise some of their standards” to “grab any good quality” in the desirable Portland market, said Brian Glanville, senior managing director at the Portland arm of real estate consultant Integra Realty Resources.
Until now, big money [did] not go after the single-family homes or the four-plex. A series of reports by the nonprofit Investigate West found that Wall Street was scooping up single-family rentals in Portland by the hundreds.
Institutional investors are probably more likely to properly maintain their buildings, according to Brian Allen, owner of Portland-based Windermere Real Estate. And they’re perhaps less prone to economic downturns or overreacting to the ever-fluctuating stock market. “They do have really long horizons,” Brian Allen said. “And so I would speculate they’re very unlikely to be slumlords. They’re probably likely to put in a professional property management company.”
That’s the case for Martin Forde, 22, who began renting at the Lower Burnside Lofts. He hadn’t been aware until this month that the buyer was an institutional group in Boston. When the lights went out, the property manager fixed it within 12 hours. And though the $1,465 monthly rent is expensive, he said, he can afford it. Still, he wonders about what’ll happen when his new seven-month lease expires. “They haven’t hiked rent,” Forde said of the new owners. “But we’ll see what happens when the next lease is up.”
https://www.oregonlive.com/front-porch/2016/03/portland_landlords_are_increas.html
SHELTERFORCE
Two Paths to Density: Profit vs People
As communities across the country begin promoting density to address the affordable housing crisis, they must grapple with how that housing will be built, and for whom.
By Daniel Hennessy
June 10, 2022
SEATTLE: The segment of 22nd Avenue that runs between Union and Cherry is, in many ways, a typical neighborhood in Seattle’s Central District. Situated in a region with a historical affinity for exclusionary housing practices, this tree-lined residential street was once one of the only places in Washington state where Black residents could buy property. As a result, 22nd, and the network of streets around it, became the center of a thriving and culturally rich Black community. Boeing workers, teachers, and the like built a middle-class neighborhood where they could raise their families and build generational wealth.
But in the last few decades, market forces have focused their eye on this quiet neighborhood with easy access to the rest of the city. The Central District, once redlined, became a lucrative investment opportunity for developers hoping to cash in on Seattle’s tech and real estate boom. Year by year, houses sold, prices skyrocketed, taxes went up, and Black people left the neighborhood. The impact has been significant. According to municipal records, the Black population in the Central District has dwindled from above 80 percent to below 10 percent.
Many of Seattle’s neighborhoods are zoned for single-family housing, meaning construction of duplexes, triplexes, and other multi-unit buildings is prohibited in much of the city. This creates a very real, and widely acknowledged, housing density crisis. As the region continues to boom, the housing deficit makes Seattle’s growth unsustainable. The effort to rezone the city’s neighborhoods to encourage density was an attempt to address this issue, and, despite its failure, the debate is sure to continue.
Though public discourse tends to focus squarely on the merits of doing away with single-family zoning, the real question lies in how we develop density in a way that centers equitable and just access to affordable housing.
On the one hand, large corporations fundamentally motivated by profit stand to extract significant wealth from a building boom. On the other hand, organizations that remain accountable to the community and build in a way that honors the neighborhood’s history hope to stem the tide of displacement. Two recent projects in the area demonstrate this dichotomy and illustrate possible futures for the Central District.
A For-Profit Developer
Thomas James Homes, a California-based, publicly traded redevelopment group backed by investment banking giant Oaktree Capital, acquired the lot on 22nd Avenue at the start of 2020 for $730,000. After a short time, both houses were built and sold, one for $1,250,000 and the other for $1,195,000. In just over a year, the monetary value of this Central District property had increased by $1,715,000. The profit margin, according to the company’s 2021 SEC filing, contributed to an overall gross profit of $45.5 million made by TJH in the first half of 2021.
The corporation’s stated goal is to enter new “desirable” markets with high population density and a significant number of affluent households that are in search of a shrinking number of quality homes. The goal of creating density for TJH is to maximize value and potential profit, not to make housing more affordable or strengthen the community that already exists.
A Community Land Trust
A couple of blocks away from the new houses on 22nd Avenue, the Liberty Bank Building sits on a large corner lot. With 115 affordable housing units and ground-floor commercial space that prioritizes leasing to Black-owned legacy businesses, the Liberty Bank Building manifests Africatown Community Land Trust (ACLT)’s mission of acquiring, developing, and stewarding brick and mortar communally owned land for the Black diaspora.
ACLT brings together a collection of stakeholders with deep ties to the neighborhood who work to retain and steward its land. As ACLT puts it, “We are here not for income, but for outcome.”
In order to secure the financing for Africatown Plaza, another affordable mixed-use development in the Central District that broke ground in February, the ACLT went through a lengthy funding effort that relied primarily on outside donors. That alone puts the land trust at a disadvantage when trying to counter the blistering pace of displacement wrought by developers with deep pockets
Africatown Community Land Trust provides a vision for what our communities can be: places where density is created to combat displacement, as opposed to intensifying it. Density can be built in a way that honors history, culture, equity, and community. Whether that happens hinges upon who is developing the land. Income or outcome. It’s time to decide.
https://shelterforce.org/2022/06/10/two-paths-to-density-profit-vs-people
Comment:
Institutional investors are buying up single-family homes and multifamily apartment buildings, rents are rising, and hopeful home buyers are squeezed out of the market. The solution to this won’t come from demonizing the corporations; they are doing what businesses do by legal means – maximizing returns on investment.
The solution will have to come out of public policies that yield both prudent regulations and financial incentives. Here we offer three remedies to consider: land value taxation, opportunity to purchase, and community land trusts.
- Land Value Taxation, which shifts the tax rate off a parcel’s building value onto its land value, will incentivize the development of properties to their maximum zoned potential and boost production of housing, especially higher density. Up-zoning, followed by increased private housing construction, will slow the process of displacement, in contrast with measures designed to restrict production such as downzoning, development moratoriums, or rent control.
- With deep pocket corporate investors jumping into the housing demand market, it becomes more difficult to compete in land and property purchase. Some Portland officials and community leaders have called for a “tenant opportunity to purchase”, requiring landlords to give tenants 90 days’ notice and the right of first refusal on a property sale. This anti-displacement measure has been taking root in cities such as San Francisco and Washington, D.C. Local nonprofit corporations are given the legal right to purchase residential buildings and keep the tenants in their existing units.
HB 2002, passed in the 2017 Oregon legislative session, requires property owners subject to an existing affordability contact or new rent-restricted projects to extend the right of first refusal to qualified non-profit and government purchasers. Now it is time for legislators to expand the pool of residential properties to include all properties with long-standing code violations or tax delinquencies.
- Progressive economists are calling for residential ownership models that remove dwelling units from the private market, claiming that affordability over the long run can only be sustained by intentionally holding down land values. Practically this can be done through the transfer of affordable multifamily properties to public or quasi-public owners. Community Land Trusts are a prime example of social housing… perpetual ownership of land titles by a non-profit corporation. CLTs like Portland based Proud Ground, offering a more stable form of tenancy, could be in a better position to purchase homes via the extended right of first refusal.
If a local option LVT becomes a reality, the incentive effects will undoubtedly help increase the total housing supply, discourage land speculation, and exert a downward pressure on land prices. Tenant opportunity to purchase policies will not necessarily create new housing units, but they will serve to slow the process of displacement. Community land trusts are an important player in urban land markets because of their role in removing housing from the speculative market. All three mechanisms mutually contribute to the expansion of affordable housing.
Tom Gihring, Research Director
Common Ground OR-WA
