Institutional Investor Activity in Housing Market Reaches New Highs, While First-Time Homeownership Rates Drop

Text of Letter (PDF)

WASHINGTON, DC – U.S. Senators Elizabeth Warren (D-MA) and Jack Reed (D-RI), members of the Senate Committee on Banking, Housing, and Urban Affairs, sent a letter to Secretary of the Department of Housing and Urban Development (HUD), Marcia Fudge, calling on HUD to preserve homeownership affordability for American families as Wall Street firms expand their activity in the housing market. The lawmakers are calling on HUD to stem the flow of single-family homes to institutional investors and to answer a series of questions about its efforts to level the playing field between families and large investors.

“It is troubling that a significant – and growing – portion of our country’s starter homes are being purchased not by families who want to live in them, but by speculators who want to use them to generate financial returns for their investors. While these trends are alarming, they are not surprising. Indeed, large investors benefit from a number of advantages that allow them to outcompete first-time homebuyers,” wrote Senators Warren and Reed.

In 2021, institutional investors accounted for 18.4% of all home purchases, a nearly 44% increase compared to the year before, with their activity concentrated in mid- and low-priced communities. As the share of homes purchased by big investors has increased, the share of homes purchased by first-time homebuyers fell to 26% in November 2021, down from 33% in 2020 and the lowest share since 2014.

The senators called out the advantages that large institutional investors have over homebuyers, including access to cheap capital, which allows them to make all-cash offers and outcompete families that require financing; the ability to waive all contingences, including a home inspection; and the ability to buy homes in bulk. They also cite studies that show that institutional investors drive up rental costs, accelerating the housing affordability crisis.

These investment activities have locked the middle class out of homeownership in the best neighborhoods and the highest-growth metropolitan areas across the country.  If Wall Street and private equity ownership of single-family homes remains unchecked, our country’s inventory of starter homes available for sale will continue to dwindle and millennial families may be forced to rent for decades to come.  Creating a permanent rental class will widen the generational wealth gap.

The senators applauded President Biden for his September 2021 announcement tasking HUD with making more of the dwindling housing supply available to families, rather than institutional investors. The senators are requesting HUD answer a set of questions about the role of institutional investors in the housing market and HUD’s progress towards President Biden’s goals by June 1, 2022.

As the country faces a housing affordability crisis, Senators Reed and Warren have called out Wall Street for buying up homes and jacking up prices for consumers across the housing market:

  • At a hearing in March, Senator Reed raised significant concerns with Wall Street and private equity buying up starter homes and sowing the seeds of a housing crisis.
  • At a hearing in March, Senator Warren blasted Wall Street for worsening the housing affordability crisis for seniors by buying up manufactured home communities.
  • At a hearing in February, Senator Warren called out private equity firms and other big investors for exacerbating inflation and locking families out of affordable housing opportunities.