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Are your buyer clients concerned about losing out to big investors?

  • Very concerned. (45%, 13 Votes)
  • Not concerned. (34%, 10 Votes)
  • Somewhat concerned. (21%, 6 Votes)

Total Voters: 29

Single family residential (SFR) rentals used to be the domain of mom-and-pop investors. But recent years have seen a new type of investor rise to claim these SFR rentals — the institutional investor.

Institutional investors — defined as those who buy ten or more homes a year — purchase SFRs in the low tier and rent them out at a profit. They’re not so different from mom-and-pop investors, except they operate on a bigger scale and lack personal involvement. Further, their large presence has those concerned about California’s low for-sale inventory pointing fingers.

Advocates for renters and first-time homebuyers say institutional investors make California’s housing shortage even more difficult on our state’s low- and moderate-income individuals. These households, many of which have competed with and lost out to big investment firms for low-tier properties, stand to lose the most from these firms’ outsized presence.

Less-expensive, inland areas of the state have seen the biggest impact from institutional investors. For example, in San Bernardino and Rialto, 10% of all homes sold in the past decade were purchased by institutional investors, according to The Mercury News.

Sacramento’s SFR market also experiences a large presence of institutional investors, with 6% of all homes sold in the past decade now in the hands of these investors.

But the good news for buyer-occupants of low- and mid-tier homes: big investors are purchasing fewer homes in California. Institutional investors have declined statewide, from purchasing 7% of all homes sold in 2012 to less than 2% in 2017.

The reason: investors like to buy low and sell high, and 2012’s low home prices and excess inventory made a lot more sense for investors than today’s highly competitive and high-priced housing market.

Therefore, first-time homebuyers looking for someone to blame for today’s tight market need to look elsewhere.

More construction, please

Today’s historically low inventory and high home prices have just one main culprit: not enough residential construction.

While SFR and multi-family construction are slowly increasing, they are doing so at a pace far below what is needed to keep up with demand. Further, most of this new construction is being completed in the wrong spots and for the wrong demographic — the housing shortage is most dire in the low tier, while most of the construction is taking place in the high tier. As a result, roughly half of the inventory for sale in California is in the top-third of homes across most of California, according to data from ZIllow:

California lawmakers have noticed the shortage of low-tier homes and have recently begun to take action. Several new laws aimed at increasing the affordable housing inventory passed in 2017, and the effects will (hopefully) be felt soon. Check out the new laws here.

Related article:

Low-tier home values are rising faster than high-tier values