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March 6, 2023

Corporate Purchase of Affordable Homes: an ongoing issue

By faithtriggs

In Part 2 of our blog series on Corporate Investors Purchasing Affordable Homes, we discuss the proliferation and continuation of corporate purchasing of affordable homes and the impact it has on the availability of affordable housing.

Why does the corporate purchase of affordable homes continue?

In addition to being lucrative, many factors contribute to the economic landscape that allows for private equity funds to buy affordable housing units and transition them into permanent rental housing.

The wage crisis. One of the biggest drivers of the affordable housing crisis is the wage crisis. In North Carolina, the minimum wage is still the national minimum—$7.25 an hour—which was established in July 2007, before the 2008 housing crisis and the subsequent Great Recession.

According to the latest data from the US Bureau of Labor Statistics, $1 in July 2007 is worth approximately $1.42 in June of 2022. This means that if the amount was adjusted for the rate of inflation alone, the minimum wage would be approximately $10.31.

This doesn’t affect only minimum wage workers—many employees, especially hourly workers, do not make wages that have been adjusted for the increased prices and inflation rates of the past decade. In Mecklenburg County, a single income earner working full time must make $25.63/hour or work 141 hours a week if they are making minimum wage. For Iredell County, a single income earner must make $19.88/hour or 110 hours a week if they are making minimum wage.

So, while housing prices are skyrocketing and rents are becoming less affordable, wages are not increasing to meet the needs of workers who might have been homeowners. Instead, they can barely afford to pay rent, much less save for a down payment or compete with a private equity fund when bidding on a property. This opens more space in the market for investors to use private equity to buy up remaining affordable housing units, which perpetuates a cycle that does not favor low-income workers accumulating wealth through homeownership.

Supply chain shortage. Especially since the COVID-19 pandemic began, a global supply chain problem has interrupted many of the processes involved in affordable housing construction and maintenance. These interruptions cause housing prices to increase due to a decrease in supply, making it even harder for low-income workers to become homeowners.

ArchDaily writer R. John Anderson calls the involvement of private equity funds in the residential housing market “gasoline on a well-established fire.” As the funds further diminish the supply of affordable housing available for ownership, it is important to consider what actions individuals can take and what policies local, state, and federal governments can enact to manage the participation of equity funds in residential real estate markets.

The role of the government in corporate ownership of residential properties

One reason that it is difficult to manage investor participation in residential real estate is the limitations of local governments to take region-specific action to regulate the market. The economic, geographic, and demographic makeup of distinct cities impact the housing market, and oftentimes, national policies are not nuanced enough to address the specific situations in varying regions and markets. Local governments are limited in their power to address those nuances.

For example, local government cannot impose taxes on corporations, especially those based in other regions or states, or directly regulate corporate ownership of affordable housing units. It also cannot bar any corporations from buying homes, as this would be seen as a violation of private property laws.

Instead, local governments are limited to their ability to educate communities and incentivize affordable housing development. They can support low-income homeowners, but between wage crises, supply chain issues, and rising housing prices nationwide, local governments are up against obstacles that they do not have the jurisdiction to address.

What are other problems resulting from corporate ownership of residential properties?

The rise of corporate ownership of residential properties has been a hot topic across the country for years. Congressional hearings in 2022 shed light on San Francisco residents paying $2,000 – $3,000 a month in rents in an already expensive housing market and when their buildings were purchased by corporate investors, rents and evictions increased significantly while services such as building security, maintenance, and access to amenities declined.

Locally, the Mecklenburg County Commissioners were provided an initial presentation last spring on the impact of the nearly 13,600 corporate owned housing units taken out of the market by six entities (causing rental prices to increase by 27.5%).

Potential issues raised from their discussion and mirroring concerns across the U.S. included:

  • Displacement of long-term resident and homeowners (especially in Black neighborhoods)
  • Disproportionate rent prices and other increases
  • Predatory Rental Practices
  • Higher Evictions
  • Poor Maintenance
  • Lack of Community Involvement by Corporate Landlords
  • Less access to affordable homeownership opportunities
  • Inability for buyers competing with investors paying 100% cash
  • Continued access to homeownership for community stability and wealth-building
  • Rights of investors to operate their businesses without unnecessary government interferences

With rising interest rates and an uncertain political landscape nationally and globally, a long-term concern is the potential dumping of these properties en masse.  The negative effect on the housing market as well as the communities where they are located could play havoc with property values.

Overall, although it appears that the fight for affordable housing and homeownership is an uphill battle, the increased awareness of the problems by elected officials at the federal and state levels and the impact on their constituents has pushed them to revisit their housing policies. Local jurisdictions have their hands tied because of the federal and state laws controlling their movement on these issues, forcing them to be creative with helping homeowners while trying not to alienate the corporate investors.

In Part #3 of our blog series on Corporate Investors Purchasing Affordable Homes, we’ll examine possible solutions to establish a more equitable environment for homebuyers as well as strategies that may be useful for government entities working to address these issues.

To hear more about the challenges to affordable housing and homeownership, please join us on Tuesday, March 14, 2023 at 6 p.m. at CPCC’s Dale F. Halton Theater for the Habitat Charlotte Region annual Building Futures Affordable Housing Symposium. This year’s keynote speaker is pathfinder, community curator and storyteller Mia Birdsong, author of How We Show Up: Reclaiming Family, Friendship and Community.

To register for this free event, click here.

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