CHARLOTTE, NC — In her first meetings with clients, many of whom are hoping to buy their first home, Sarah Ortiz Hilton runs through a list of warnings.
They may have to offer tens of thousands of dollars over the asking price only to have those offers declined anyway, says Ms. Hilton, a real estate agent. You may have to pay thousands of dollars in non-refundable fees to get a seller to consider your offer. And if they’re looking for a home for less than $300,000, they may be out of luck.
In part, their cautionary tale reflects the red-hot housing market, rising interest rates and limited supply across the country. But, particularly in booming Sun Belt markets like Charlotte, it also reflects something else: the increasing influence of real estate investors buying homes, particularly at the lower end of the market, and converting them into rentals.
In cities like Charlotte, this trend is exacerbating the shortage of homes for sale, driving up prices and leaving home ownership out of reach for many first-time buyers, the biggest losers in today’s market.
About 2.5 million households looking for a primary home will be foreclosed from the market this year, estimates Nadia Evangelou, senior economist at the National Association of Realtors. That’s 15 percent of all first-time homebuyers. Buying by investors adds to the obstacles in an already scary market.
“As more investors buy up entire communities and turn them into rental communities — people don’t have a choice,” said Ms. Hilton, who moved to Charlotte from New York in 2007, attracted by the opportunity to buy a home in an affordable market. “They either can’t afford it anymore or there’s nothing to buy.”
A map compiled by Mecklenburg County, which includes Charlotte, shows a sea of dots indicating company ownership across the region. The exception is a pie-shaped segment stretching out from downtown Charlotte — the historically whiter, more affluent neighborhoods often referred to as “the Wedge.” More than 93 percent of homes purchased by companies were purchased for less than $300,000 as of May 2021. Many of them were in predominantly black neighborhoods.
Across the country, large investment firms still make up a small fraction of America’s home buyers.
“It’s really difficult to argue that a handful of companies that own 300,000 homes across the country really have the power to affect things like house prices and rental prices,” said David Howard, executive director of the National Rental Home Council, which represents the Detached house rental industry.
But their share is growing: Real estate investors bought a record-breaking 18.4 percent of homes sold in the U.S. in the fourth quarter of 2021, up from 12.6 percent a year earlier, according to real estate firm Redfin.
And in some markets, particularly in the relatively affordable Sun Belt metropolitan areas, their share is far higher.
In Charlotte and Atlanta, investors bought more than 30 percent of homes sold in the fourth quarter of 2021, according to Redfin. In Jacksonville, Florida, Las Vegas and Phoenix, they bought almost 30 percent.
Housing industry officials point out that these numbers, which define investors as any institution or company, also represent purchases by smaller, local owners who may only own a building or two through a limited company.
For decades, Marjorie Parker knew all of her neighbors in Hidden Valley’s East Charlotte neighborhood. Life wasn’t always easy there, as gang violence regularly shook the streets. But Ms. Parker found solace in the strength of the community and the economically stable middle-class life it offered black families.
The first change she noticed was the flyers outside her door. They offered to buy their house for cash. Soon her phone was ringing multiple times a day, and calls offered the same.
She was determined to hold on to her home, but for many of her neighbors, some of whom had property tax arrears or had struggled to maintain their possessions in old age, the offers were a welcome escape.
When a house next to hers went up for sale last year, young families flocked to visit. But the house was quickly sold to a rental company.
“There should be a cap on that — you can’t have a bunch of people all having houses,” Ms Parker said. “Where ordinary people cannot buy a home is a sad day in America.”
With apartments in her neighborhood typically renting for $1,500 or more, Ms. Parker and other longtime homeowners worry that property tax hikes will crowd out even more residents.
And there are also problems for tenants. Various studies have found that corporate landlords are more likely to raise rents, evict their tenants and poorly maintain their properties than smaller landlords. A 2018 Department of Housing and Urban Development study found that large business owners in Atlanta were 68 percent more likely to file eviction lawsuits than smaller owners.
Faced with a steady encroachment of corporate buyers, some neighborhoods are struggling to ward them off.
Just north of Ms. Parker’s neighborhood, residents of Mallard Creek’s Avalon townhome community watched as companies quickly snapped up homes for sale and converted them into rentals. According to Keri Miller, homeowners’ association treasurer, more than 40 percent of the apartments there were rented last year.
The association, frustrated by what it described as poor maintenance of the homes occupied by tenants, voted on a lease addendum that would require anyone buying a home in the community to reside in the unit for at least a year before renting it rents.
The change was passed, and as of last February, the percentage of tenants had fallen by 10 percent, Ms Miller said.
Industry representatives criticize these efforts as discriminatory against tenants.
“Why would a young family, unable for whatever reason to buy a home, be prevented from living in a neighborhood that is close to schools, jobs and other neighborhood amenities?” Mr. Howard said.
Demand for rental housing is high, and “businesses are coming in and trying to meet that demand,” he said. He added that companies are also addressing the supply shortage by building new rental communities from the ground up.
However, critics say that renting a single-family home offers far less chance of long-term stability and wealth accumulation than owning a single-family home. And the typical starting rent of about $1,500 in the area does little to meet the needs of renters at the lower end of the market.
Jameisha Wilkes spent months looking for a home that would keep her close to her daughter’s therapy for autism, her job at a grocery store and her mother’s home in the same subdivision.
For sale signs appeared in front of the modest homes in their subdivision in Charlotte’s northeast suburbs. With the help of a down payment assistance program and financing up to a $180,000 mortgage, she figured she might have a chance.
But as she searched for the homes on Zillow, she was shocked to find that many homes in her neighborhood were selling for more than $300,000, double what some had been selling for just about five years ago. Occasionally she found something in a different area that was closer to her price range, but it was gone quickly.
“If there’s an affordable home, it’s gone within 24 hours,” Ms. Wilkes said. “Most of the time I can’t even make it to the open house before there’s an offer.”
Now Ms Wilkes is busy packing her things, but not to move into her own house. After her landlord, Tricon Residential, which now owns more than 1,600 single-family homes in Mecklenburg County, offered to renew her lease for $150 more a month, she decided to move her daughter into a small one-bedroom apartment nearby pull while she saves money to buy.
Local officials are looking at ways to give people like Ms. Wilkes a chance at homeownership, such as buying land and listing it below market value and creating laws to discourage corporate ownership. However, no specific guidelines have been proposed.
At the federal level, too, efforts to curb the spread of company home ownership are progressing only slowly. A Senate bill that would close legal, tax and regulatory loopholes “that allow private equity firms to reap all the returns on their investments while protecting themselves from risk” has sat on the committee since Senators Elizabeth Warren of Massachusetts, Sherrod Brown of Ohio and others submitted it in October.
Many homebuyers now see their last hope as a stroke of luck.
On her route as a mail carrier, Ashlee Floyd would take photos of sale signs to look for the offers during breaks, only to find one after the other listed outside of her $300,000 budget. Offers she made for five houses were turned down.
Ms Floyd skimped on a higher down payment – reduced Christmas gifts and after-school activities for her two children – and worked as much overtime as possible, often working 65-hour weeks.
Two years after she began searching, she found a home she could afford in a quiet residential area of northwest Charlotte and an owner who was determined to sell to a family rather than a business. It closed last week, paying $292,000, $27,000 over the asking price.
“It’s over, the nightmare is over,” Ms Floyd said. “We now have only one basis. Here we will sow our seed and grow from here. That’s how it feels.”