- Institutional investors, medium-sized investors, and large investors collectively own only 3.4% of all homes in America, debunking the notion that they own a significant portion.
- Institutional investors are looking to acquire medium and large-sized property portfolios, not taking owner-occupied properties out of the market.
- Institutional investor impact varies by location, with certain cities experiencing more concentration of ownership.
In recent times, there has been much discussion and concern about the role of institutional investors in the housing market. Some have raised alarm bells, suggesting that these investors are poised to take over the housing market, displacing individual homeowners and causing a seismic shift in the landscape of real estate.
We have misinformed people saying that institutional investors own 30 to 40% of single-family homes and that number is going to go up to 60%. They’re saying the reason that they can’t buy a house is because all these big Wall Street firms have bought all the houses out from underneath them.
A prominent presidential candidate is saying that institutional investors in a couple of years are going to own 60% of all the homes in America. And now we have a bill saying that institutional investors are going to be not allowed to own a home and they’re gonna have to sell off their current inventory in the next 10 years.
But is this really the case? Let’s dig into the facts and separate myth from reality.
Types of Investors
First off, you need to understand what an Institutional Investor is. Often, people use the term “investor” broadly, but in reality, there are four basic categories, each with its scale and approach to investment.
Mom-and-Pop Investors: These are individuals or small-scale investors. Think of your neighbor who bought the house next door or a person who owns a few properties as a side business. These investors typically own a small number of properties, maybe two or three, and their involvement in real estate is often part-time or supplementary to their main income.
Medium-Sized Investors: This group steps up from the mom-and-pop level. They own a more substantial number of properties, usually ranging from 10 to 99 homes. Their investment in real estate is more significant, and often, this group treats real estate investment as a major source of income or a primary business.
Large Investors: These are serious players in the real estate market. They own between 100 and 999 homes. Their involvement in real estate is extensive, and their operations are often well-structured and professionally managed.
Institutional Investors: At the top of the scale are institutional investors. By definition, these entities own 1,000 or more homes. This category typically includes large corporations, investment funds, and other institutional entities. Their scale of operation is vast, and they often have a significant impact on the real estate market.
In discussions about real estate investment, it’s important to clarify which category of investors is being referred to. Sometimes, medium, large, and institutional investors are collectively referred to as “institutional investors” for the sake of simplicity or to focus on those who own a large number of properties. However, this broader use of the term can sometimes lead to confusion or misinterpretation of data and trends in the real estate market.
Institutional Investors Own Less Than 1% of All Homes
Contrary to widespread beliefs, institutional investors, defined as those owning over 1,000 homes, account for just over 0.5% of U.S. home ownership. When this figure is combined with that of medium and large investors, the total still amounts to only about 3.4%. These statistics challenge the narrative of institutional investors holding a dominating presence in the housing market, a misconception that needs addressing.
Where did this misinformation come from?
One source of confusion comes from a study by MetLife, which some have interpreted as suggesting that institutional investors will own 40% of all homes in the country by 2030.
However, the study indicates that institutional investors may own 40% of rental homes by that time, not 40% of all homes. This clarification is crucial because it changes the narrative significantly.
Another Article in Medium written by “Hopeless Romantic” misrepresents that Institutional investors bought 44% of all single-family homes in 2023. The article was talking about the first three months of the year.
The article linked to two different articles neither of which say anything about 44%. These private equity firms did not buy 44% of all homes in 2023, but rather, they purchased only 3% of homes in the first part of 2023.
Focus on Rental Homes, Not Owner-Occupied Properties
Institutional investors are not looking to gobble up owner-occupied properties. Instead, their interest lies in acquiring portfolios of medium and large-sized rental properties. In essence, they are not taking homes away from the market but rather changing ownership within the rental sector. This is a common practice in many industries, and it doesn’t necessarily mean fewer opportunities for individual homeownership.
Separating Fact from Politics
Let’s look at the responses from two respected figures in the real estate industry. Lance Lambert and John Burns highlighted the inaccuracies. Lambert, formerly with Fortune Magazine, pointed out that institutional operators, who own at least a thousand homes, only account for a small fraction of the single-family home market. Burns, a consultant in new construction, expressed concerns about how misinformation influences public opinion and legislation.
The debate around institutional investors in real estate has taken on political undertones, with both sides using the issue to gain support. However, it’s essential to remember that this isn’t purely a political matter. The impact of institutional investors varies greatly by location, and the overall scale of their ownership is smaller than sensationalized reports suggest.
Institutional investor impact is not uniform across the country. Some cities, such as Atlanta, Dallas, Houston, Phoenix, Charlotte, and Tampa, see a more significant concentration of institutional ownership. In contrast, other parts of the country have minimal or no institutional investor presence.
As an investor-friendly real estate agent, I see my role as helping clients navigate the housing market. Instead of parroting unresearched claims, I pride myself on being a well-informed source of information. I believe that providing clients with accurate data combined with an understanding of the market allows them to make informed decisions.
The role of institutional investors in the housing market is more nuanced than often portrayed. While they are becoming significant players in the rental sector, they are not poised to take over all homes in the country. The housing market faces more pressing challenges, such as shortages, that require attention. Agents should stay informed and provide balanced perspectives to their clients, helping them make the best decisions for their unique situations.