After the housing crisis, institutional investors became one of the largest homebuyer segments. In a new study from the Urban Institue, researchers ask if these investors have raised or depressed surrounding home prices, and examined their impact on rents.
According to Urban, housing prices started to recover around 2012, but homeownership rates continued to decline until 2016. According to Lauren Lambie-Hanson, an advisor and research fellow at the Federal Reserve Bank of Philadelphia’s Consumer Finance Institute, this “housing recovery without homeowners” is partly caused by the increased market presence of institutional investors—corporate entities that invest in multiple properties, either for the purpose of flipping or renting.
Rohan Ganduri, Assistant Professor of Finance at Emory University’s Goizueta Business School, and his coauthors found “institutional purchases of distressed properties have a positive spillover effect on neighboring home values.” Homes within a quarter-mile (roughly five blocks) of an institutionally purchased home sold at a value 1.4% higher than properties a quarter- to a half-mile farther.
“The economic significance of this effect is that investors account for, or help explain, about 28% of the house price recovery,” Lambie-Hanson explained.
Rents, meanwhile, seem to have been unaffected by institutional investors. Large institutional firms that offer single-family rentals have spent on average $21,000 in renovations after acquiring a home, said George Auerbach, a managing director and the head of research at Pretiu. Lambie-Hanson also noted that “there really isn’t any evidence in our research that institutional investors led to higher rents or greater eviction rates for our sample of counties tracked through the recovery.”
“There’s been a large shift in how institutional investors buy homes today versus in 2009 through 2014—certainly much less distress, many fewer blind pools,” said Auerbach. “How will that impact pricing differently going forward than it did in the postcrisis period?”