There Goes the Neighborhood: Wall Street Landlords Drive Up Rents

Big Wall Street landlords are facing criticism as their role in rising rents takes center stage amidst a housing affordability crisis.

Blame is being piled on from all sides. From renters venting their frustrations on Reddit to members of Congress looking for ways to lower the cost of housing, institutional investors are accused of contributing to the financial challenges homebuyers and renters — including those who would prefer to own homes but are priced out of the market — face.

The issue is what affordable-housing advocates call the “financialization” of the housing market, which includes practices like large investment companies buying single- and multi-family homes and becoming large-scale landlords of massive rental-property portfolios. These corporations have deep pockets and can often out-bid individuals by making all-cash offers, since sellers generally prefer offers that aren’t contingent on a buyer’s ability to get a mortgage.

Perhaps surprisingly, renters are also affected negatively when investors snap up homes by the dozens. According to Philadelphia Federal Reserve research, institutional investors hike rents at 60% higher rates than is otherwise typical in markets where they buy properties. Rates for subsequent leases increase by 7% above average. The research also indicates that the increases implemented by corporate landlords also tend to push rents from smaller landlords higher.

How corporate landlords impact the rental market

Institutional investors, defined by the U.S. Department of Housing and Urban Development (HUD) as corporations that own 1,000 or more housing units, held roughly 3% of all single-family rentals in the country as of 2022. More recent estimates suggest that this has climbed to 4% today.

Although 4% might not sound like a big number, the impact is significant. Data from the National Association of Realtors (NAR) shows that corporate landlords accounted for 15% of all residential purchases in 2021 when mortgage rates were below 3%.

More recently, real estate brokerage Redfin reported that investors purchased 18% of all homes — and 26% of all low-priced homes — sold during the last three months of 2023.

Most investors are attracted to markets in the South and Southeast because prices are comparatively lower than in other parts of the country. States like Texas, Georgia, Alabama and Florida have the highest share of institutional investors.

Rising rents aren’t the only concern policymakers have with large investors playing a significant role in the housing market. These property owners tend to snap up homes in neighborhoods with lower property values, according to a 2023 research analysis from HUD’s policy research arm.

“Investor activity reduces the inventory of homes available for potential owner-occupants to purchase, especially homes at lower price points,” researchers warned. “These lower-priced homes are the types of homes that first-time homebuyers and groups that historically have been excluded are likely to target.”

According to both the Philadelphia Fed and NAR, the areas favored by institutional investors tend to have a larger share of non-white homeowners and a high percentage of renters.

In a housing market already characterized by low inventory and high prices, HUD found that big investors distort housing supply and demand to the detriment of ordinary Americans. “These [investor] purchases not only take units off the market but also apply upward pressure on the prices of the homes that remain for sale,” researchers wrote.

Policymakers are searching for potential solutions

The concern over the lack of affordability in rental housing caught the attention of Senator Sherrod Brown (D-OH), who introduced the Stop Predatory Investing Act in July of 2023. The bill proposed to curtail investor activity by limiting the tax breaks big investors can get from owning a portfolio of rental homes.

Another bill introduced in 2024 by Democrats in both Congressional chambers seeks to ban the use of AI and data algorithms by landlords to establish rent prices in local markets. The legislation's backers say these algorithms allow property owners to collude and fix prices above what the market would otherwise dictate. Some state and local governments, such as New Jersey and San Diego, California, have already introduced legislation prohibiting landlords from using these types of tools.

While state and local legislation is advancing, housing experts say that a national restriction of any type on institutional investors would be much harder to achieve. President-elect Donald Trump has not publicly addressed the issue of institutional investors or their effect on rent prices. With Trump’s pro-business record and Republicans in control of both the Senate and House of Representatives, there may be little legislative action that could ease high rents in the near future.

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