The Myths of "Wall Street Investors"

THE MYTHS OF “WALL STREET INVESTORS”

Since the Great Recession, there have been a handful of companies, including publicly traded companies, that have emerged and who have purchased and manage thousands of homes across the state and country. This is no longer news to anyone. What has changed recently, however, is the potential legislation aimed at overseeing such companies. In the past few months, we have seen this on the federal level as well as on a state-level. It is important to follow these discussions as well as the proposed legislation, but it is also important to understand the numbers behind the industry and not rely on mere speculation.

In January, President Trump announced via social media his administration is moving to ban Wall Street firms from buying up single-family homes in a bid to reduce home prices. No details have been provided as of the date of this writing, so it is unclear what size a company must be before this applies, but it would ban companies of a certain size from buying more homes. It would not require them to sell any assets they already own. This announcement comes after the President proposed other measures to address rising home prices, including a 50-year mortgage and portable mortgages. It is clear he is making pricing an issue of his administration and trying different options to see what gains traction. He indicated that he would seek to implement policies immediately, and he would be asking the federal legislature to codify such a ban into law.

After his announcement, HB 2325 was proposed in Arizona, entitled “Own Something and Be Happy Act.” It defines an “institutional investor” as an entity that “owns or manages ten or more single-family homes in this state.” It then provides that “an institutional investor may not own more than fifty single family homes in this state.” It also bans such entities from offering to purchase a home within the first 60 days its listed, or publicly available for sale, and it bans them from buying homes in bulk. For any entity that owns over 50 homes, it cannot buy any new homes and it may voluntarily sell homes until it comes into compliance with the law.

To be clear, this is not a law that has been passed. This is a bill that has not yet even been assigned to a committee, and it is unknown what path it will take in the legislature. A bill must make it through both the House and the Senate and then be signed by the Governor before it becomes law. That is a complicated process. What is certain is that politicians are looking to restrict these entities, and they are claiming that “institutional investors” are impeding average homeowners ability to buy homes and pushing up prices.

However, just because it is being proposed, does not mean it is good policy or based upon actual facts. Opponents have quickly responded and cited numerous sources to rebut the claims that institutional investors are driving up prices. A week after President Trump’s announcement, there was an article in Fortune magazine explaining that restricting zoning and roadblocks to building, is what is increasing prices (arguing that low supply causes prices to rise). Further it was stated that “As more and more people can’t afford to buy single-family homes, they’re providing the option of living in

one at lower cost by renting. That takes those people out of the purchase market and hence can take pressure off prices. Further, a NYU professor of real estate published a paper entitled “The Impact of Institutional Investors on Homeownership and Neighborhood Access.” Some of the important takeaways from the report are that such institutional investors actually drive rents down, thus helping renters. The report further indicates that these entities were competing with other prospective investors, and generally not with end-user homeowners. In other words, they are not impeding with people buying homes for themselves, but rather other types of investors.

For AZREIA members, this will be an incredibly important bill to watch because many of you may fall under this new definition of an “institutional investor.” Alternatively, you may be competing with such a buyer, for a new investment property.