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Cash for Homes: Policy Implications of an Investor-Led Housing Recovery

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By Sarah Edelman

For the first time, institutional investors are entering the housing market in an organized and significant way, purchasing tens of thousands of homes across the country as part of a new scattered-site, single-family-rental asset class. Institutional and individual investors alike are moving away from rehabilitating and flipping properties quickly. Instead, they are increasingly pursuing a buy-and-hold strategy in which they rent the property for a number of years in order for it to appreciate and then sell it.

Although this sector is relatively small, analysts expect that the new class of rentals will grow into a $100 billion industry in the coming years. Indeed, The Wall Street Journal reports that Deutsche Bank may soon begin selling securities backed by rental payments from properties owned by institutional investors. Such an innovation will propel this industry’s growth even more.

To ensure that investment activity in the housing market is socially and economically productive, we must examine investment trends and their possible impacts on communities and the economy.

It is also important to consider the implications of a housing recovery built primarily on investor-owned properties as opposed to homeowners. Investors alone—even if they act responsibly—cannot build a robust, long-lasting housing recovery.

As research firm CoreLogic said in a market report last month, “Going forward, continued U.S. housing market recovery depends on trade-up and first-time homebuyers replacing cash buyers.” Our nation urgently needs housing finance reform to get the mortgage market working again for qualified borrowers.

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