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Wall Street, Main Street, Your Street: How Investors Impact the Single-Family Housing Market

Sean Brunson, Richard Buttimer Jr.

University of North Carolina at Charlotte

May 2020

Home Price Indices

110 120 130 140 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Case−Shiller Zillow

Popular Press

“Affordable Housing Crisis Spreads Throughout World” – Wall Street Journal (2019) “America’s Housing Affordability Crisis Only Getting Worse” – Forbes (2019) “America’s Housing Affordability Crisis Spreads to the Heartland” – Bloomberg (2019) “Investors Are Buying More of the U.S. Housing Market Than Ever Before” – Wall Street Journal (2019) “1st-Time Homebuyers Are Getting Squeezed Out By Investors” – NPR (2019)

Overview

Empirically examine the entrance of institutional investors in the single-family housing market before and after the 2007-2009 recession Using home sale transactions for the Charlotte region between the years 2005-2017, find that institutional investors paid about 8.13%-11.19% less than owner-occupiers per transaction Additionally, find that an increase in investor home purchases had a positive statistical impact on individual home prices but only a moderate economic impact

Economic Policy/Proposals

Executive Order Establishing a White House Council on Eliminating Regulatory Barriers to Affordable Housing – Donald Trump (2019) American Housing and Economic Mobility Act – Elizabeth Warren (2019) People First Housing – Julian Castro (2019) Assembly Bill 1482 – California (2019)

Was It Just a Demand Shock?

Could be that investors were just consolidating the existing single-family rental market Could be that preferences shifted from owning to renting Could be that investors were actually outbidding owner-occupiers

Data

Data comes from Metrostudy, which maintains one of the most comprehensive U.S. housing databases

Restrict our study to the detached single-family housing market

We identify investors and non-investors in the Charlotte housing market using the names of the seller and purchaser Define investors as non-individuals that are not banks, mortgage/credit lenders, relocation companies, building companies, nor government entities Define an institutional investor as an investor that has filed as a publicly traded company, has filed as a REIT with the SEC, or has filed a Form D with the SEC These institutional investors include companies such as Invitation Homes, American Homes 4 Rent, and Colony Starwood Homes

Investor Purchases (2005)

Investor Purchases (2006)

Investor Purchases (2007)

Investor Purchases (2008)

Investor Purchases (2009)

Investor Purchases (2010)

Investor Purchases (2011)

Investor Purchases (2012)

Investor Purchases (2013)

Investor Purchases (2014)

Investor Purchases (2015)

Investor Purchases (2016)

Investor Purchases (2017)

Percentage of Sold Homes Purchased by Investors

0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Institutional Investor Non−Institutional Investor

Homes Bought by Investors from Owner-Occupiers

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Institutional Investor Non−Institutional Investor

Rental Units that are Single-Family Units

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Was It Just a Demand Shock?

Could be that investors were just consolidating the existing single-family rental market – No Could be that preferences shifted from owning to renting Could be that investors were actually outbidding owner-occupiers

Homeownership Rate

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Was It Just a Demand Shock?

Could be that investors were just consolidating the existing single-family rental market – No Could be that preferences shifted from owning to renting – No Could be that investors were actually outbidding owner-occupiers

Examining Institutional Investor Price Effects

Use a standard hedonic model to examine the impact institutional investors had on individual home prices Ask how much more or less institutional investors were paying

Turns out they were paying less than owner occupiers, so they were not directly raising home prices

Also look at their overall activity in the market and ask how did it affect the price at which owner-occupiers paid

Institutional Investor Price Effects

Variable Baseline τ = 0.25 τ = 0.50 τ = 0.75 Purchased By Institutional Investor

• 0.114***
• 0.081***
• 0.098***
• 0.112***

(-30.762) (-26.137) (-37.761) (-49.252) Recent Investor Activity 0.006*** 0.003*** 0.005*** 0.006*** (9.326) (4.36) (9.256) (10.905) Intercept 11.069*** 10.975*** 11.123*** 11.221*** (353) (142.7) (219.482) (285.251) R2 0.774 0.55 0.585 0.608 N 319,423 319,423 319,423 319,423

Was It Just a Demand Shock?

Could be that investors were just consolidating the existing single-family rental market – No Could be that preferences shifted from owning to renting – No Could be that investors were actually outbidding owner-occupiers – No

Conclusion

Empirically find that institutional investors paid about 8.13%-11.19% less than owner-occupiers per transaction Results also suggest owner-occupiers paid about 0.32%-0.59% more for single-family homes than what they would have absent institutional investors

However, this effect is fairly weak both statistically and economically

Overall, find little evidence that the entrance of institutional investors had a significant effect on rising home prices