Sen. Elizabeth Warren (D-Massachusetts) is demanding answers from housing corporations with backing from private equity, who she says are involved in inflating housing prices for both renters and buyers.
Warren sent letters to CEOs of Progress Residential, American Homes 4 Rent and Invitation Homes to condemn rent hikes and rising house prices that she says are a result of corporations’ growing influence on the housing market. Her aim is to determine whether or not these businesses have been taking advantage of current housing shortages.
“Our country faces an unprecedented affordable housing supply shortage,” she wrote. “Decades of underinvestment, coupled with restrictive zoning and other practices that undermine construction, have allowed the demand for housing to far outpace the availability of homes, resulting in a shortfall of nearly four million homes and rapidly increasing costs for renters and first-time homebuyers.”
In her letters, Warren pointed out that the three companies have been acquiring homes and increasing rent at a rapid pace. American Homes 4 Rent is “keeping affordable housing out of reach for American families,” she wrote, by increasing rents by over 10 percent for single family rentals.
“Considering the history of complaints made against you by your tenants for cutting corners on maintenance requests and excessive fees, I fear that these poor business practices have also contributed to your increased revenue,” she said, noting the company’s nearly 66 percent net income growth from single family rentals over the past year.
Invitation Homes and Progress Residential are acquiring homes at a rapid pace, the lawmaker noted. Invitation Homes has accelerated its pace for buying homes, spending over $700 million and buying approximately 1,700 homes in the third quarter of 2021 alone.
Meanwhile, Progress Residential buys up to 2,000 homes every month and has even automated its house acquisition. The company can now assess a home within 15 minutes of its appearance on the Multiple Listing Service real estate database, Warren pointed out, and can make an offer within two hours of its listing. Further, in the years after the Great Recession, the company focused on buying homes valued at between $70,000 and $190,000 – homes that are within the price range for low-income families or first-time buyers.
Warren said that Progress Residential residents have been reporting rent increases of as much as 30 percent over the past five years. In addition, the company is reportedly charging excessive fees despite not performing maintenance. The company also charges tenants a $200 “eviction administration” fee if it files to evict the tenant.
Business practices by private equity and investment firms have contributed to the greatest one-year increase in housing prices for Americans since 2007, Warren wrote. Indeed, the Bureau of Labor Statistics has shown that shelter costs rose by 0.4 percent in December – the largest contributor to the all items index rise of 7 percent last month.
Partly because of global and Wall Street investors, it has become increasingly difficult for Americans to afford buying entry level homes. House prices began to surge last year, marking huge gains; home prices in October rose by 18.4 percent over last year, according to research released in December. Experts have said that the current market may be among the worst ever for first-time home buyers; the average home price at the end of September last year was up a whopping 30 percent from the same time in 2019.
This has led first-time homebuyer purchases to decrease to 26 percent in November – down from 33 percent in 2020. It’s also forcing people to take incredible and risky leaps in home buying, as regular home buyers in some areas are having to send in bids for a house within hours and even waive inspection in order to obtain a house. Because investors can access listings before regular people can, many houses are being bought before they’re even publicly listed online.
“Investors have been outcompeting first-time homebuyers because of their ability to make cash offers, which comprised over three-quarters of investor offers,” Warren noted. “These cash offers provide the additional benefit for investors of allowing them to pay 10% less on average than individual buyers.”