Affordability and availability of homes have been red-hot issues in recent times, with tons of arguments regarding what is causing the increasing shortage. Of the numerous factors in the crosshairs, investors’ role in the market is an important topic. Are institutional investors and landlords pushing out homeowners and exacerbating the housing shortage, or is their contribution skewed? The purpose of this blog is to untangle such a complicated relationship and its meaning for the housing market.
Understanding the Housing Shortage
The current housing shortage is a massive challenge for millions, marked by record-breaking prices and dwindling inventory. According to the National Association of Realtors, the United States is currently more than 5 million short on supply compared to the current demand. First-time homebuyers and renters are disproportionately affected and have fewer choices and greater costs.
Reasons for the shortage are varied. Building material costs, zoning ordinances, and labor shortages make it difficult to build new homes. Additionally, the lingering effects of the 2008 financial crisis impacted housing construction for several years. While these structural explanations explain much of it, there is increasing worry about the intersections of investor activity with this landscape.
The Rise of Investor Activity in Housing
Over the past decade, home property has been a top target for investment by investors. Private equity firms and real estate investment trusts (REITs) are among the institutional investors that have raised their purchases, enticed by the relative stability of the property market. At the same time, individual landlords and investors have grown in numbers too, seeking to cash in on rental returns and appreciation in value.
Investor-owned homes are not only concentrated in cities, but also spreading into suburban and even rural neighborhoods. Recent statistics highlight that in 2021 alone, investors bought 18% of all US homes sold, a record. This increasing ownership raises fundamental questions about supply, affordability, and the future of homeownership.
Are Investors Making It Harder to Buy?
Investors, critics claim, are fueling the shortage of housing by competing with regular buyers and depressing supply. Institutional investors, especially, have the means to purchase lots of houses in bulk, even without contingencies, which leaves individuals in a tough spot to engage in bidding wars. And when houses are turned into rentals instead of owner-occupied properties, they take them effectively off the market for prospective buyers, contributing to the shortage.
Another contentious issue is property flipping. Investors purchase lower-priced homes that need renovation, refurbish them, and resell for much higher prices. While these improvements increase the value of property, they may boost neighborhood prices, which exclude buyers seeking lower-priced homes.
But not everyone believes that investors are the villains in this story. Investors’ advocates believe that investors provide necessary rental supply for individuals who cannot or do not wish to purchase a house. They feel that institutional landlords take better care of houses than private owners of rentals, raising the quality of housing overall.
How a Realtor Can Help You Find the Perfect Home
Housing deficiencies and high investor demand do not leave you without options as a buyer. A good realtor in Mustang, OK, can make the difference. Realtors understand how to locate off-market inventory and negotiate in your favor to obtain you a home, even under demanding markets. Having someone with inside expertise on your local housing situation places you at an improved competitive edge.
If you are struggling to find the perfect home, you might want to take advantage of the expertise of a realtor. They will be able to tailor searches for you and develop strategies to make you win, no matter what the competitiveness of the market is.
Beyond the Numbers
Are investor deals the main driver of the housing shortage? The reality is complex. While investors are undoubtedly a force that influences market dynamics, they are one aspect of a bigger system in which regulatory, economic, and demographic factors all play a role.
Instead of apportioning blame, the debate may need to shift to finding solutions that find a balance between homeownership choices, rental inventory, and affordability of housing. Resolving this complex issue will require coordination between sectors, but the debate needs to begin with understanding each of the influences involved, including investor activity.
