Real Estate Investors Under New Scrutiny Of Lawmakers
As real estate investors continue to dominate the single-family home market since the mid-point of the pandemic, lawmakers and HOAs have teamed up to impede the intense market activity using a Canadian strategy.
Along with mom-and-pop operations, big financial corporations, driven mainly by massive institutional investment, have invested heavily in the housing market amid extreme financial volatility in global markets.
Institutional Investors Continue To Dominate National Housing Markets
Investors, such as Invitation Homes, the owner of 83,000 properties, favor properties for long-term rentals. Investors purchased 33% of U.S. real estate in January alone, which was the highest percentage in decades according to housing research and consulting firm John Burns Real Estate Consulting.
Since the beginning of the pandemic, the investors’ drive into rentals has only intensified, leading to a speculative bubble. However, Urban-area residents have still been seeking a more cottage-like escape, leading them to bidding wars with large, deep-pocketed real estate firms who in turn have become more aggressive, which has alerted local governments from Newark, New Jersey to Dallas, Texas, and even the California State Capitol.
Lawmakers Fight Back Real Estate Investor Advances
These recent homebuyer experiences have helped stir a wave of intervention from municipal governments and developer proponents of housing policies seeking to prevent skyrocketing housing costs that could potentially break up tight-knit communities. Newark Mayor Ras Baraka has stated that the city is contemplating the prevention of sharp rent increases by formulating a policy that would regulate corporate ownership.
Homeowners of states like North Carolina have been taking matters into their own hands for the last couple of years. As an example, the Whitehall Village Master Homeowners Association in Walkertown, North Carolina, has proposed new amendments to obligate buyers to live in the dwelling or leave it vacant for a period of 6 months before the allowance as a rental property.
Drastic Times Call For Potential Drastic Measures
With the rapid growth seen in the Dallas, Texas area of the country, many leaders are proposing a law to limit the allotment of properties purchased by investors. Many of the opponents to such a measure are calling it quite drastic of a legal choice, but local governments argue that it may be a necessary measure to take.
Using the population growth rates published by the US Census, the population of Dallas increased 0.9% annually from 2010 to 2020, to 1,304,379 people. The Census Bureau estimates those numbers will more than double creating 1,393,623 additional residents in the next 10 years.
Dallas took inspiration from bold moves made by the Canadian government. In April, Canada announced a requirement that no foreign investor may buy land in the country in an attempt to prevent its ever-expanding housing market from boiling over. In conjunction with the new real estate restrictions, the Canadian government imposed a higher tax on those selling their homes within a year of purchase.
Recently, NPR noted that real estate markets in Canada rushed up by more than 20% in 2021, while home prices in the US climbed 19% from the year 2016 to 2021, as recorded by S&P CoreLogic’s US National Home Price Index. Also according to S&P’s Case-Shiller Index, home values in the Dallas area have increased by 26% in 2019, and are ahead of the national average in the first two months of the 2022 fiscal year.
California Lawmakers Are At The Forefront Of The Housing Crisis In The United States
In what is most likely the least affordable state in the entire United States, California lawmakers are deeper into their battle with real estate investors.
In an attempt to discourage the practice of flipping real estate, Democratic assemblyman Christopher Ward introduced the California Housing Speculation Act, known as AB1771, that places a tax on profits from short-term real estate investor transactions. This decision by Ward was to give everyday homebuyers a chance to compete against house flippers and investors who have increased housing prices for all citizens.
Continually, housing advocates are getting repulse from real estate investors who say they are just as legally welcome to purchase property as the average homebuyer.
Critics of Ward’s so-called “flip tax” mention that his bill would actually harm non-institutional property buyers because there’s no way to thoroughly differentiate which buyers are regular citizens versus corporate buyers who have the buying power to acquire a property and sit on it for an extended amount of time.
Whether you’re an everyday person looking to become a homeowner or someone looking into real estate as a strict investment, the fact remains that current investor activity is massively transforming the US housing market — and citizens and lawmakers alike are paying close attention.