CAP Calls on Policymakers to Monitor the Role of Investors in the Housing Recovery

September 5, 2013

Washington, D.C. – September 5, 2013 – (RealEstateRama) — As private investors across the nation take advantage of the foreclosure crisis by purchasing tens of thousands of homes at bargain prices, often beating out potential homeowners who remain sidelined, a new report released today by the Center for American Progress calls on policymakers to closely monitor investor activities in order to limit any negative impacts of this growing trend.

“Investors can and should play a role in the housing recovery,” said Sarah Edelman, author of the report and housing policy analyst at the Center for American Progress. “But with an unprecedented surge of institutional investors entering the market in an organized and significant way, it’s critically important that policymakers monitor and manage investors to ensure that they are acting responsibly and playing a stabilizing role in communities.”

While it’s not unusual for investors to buy inexpensive properties after a housing downturn, this time around we’re witnessing a heavy volume of investment and a broader range of investors seizing on low home prices. In July, cash-on-hand investors bought roughly 55 percent of the homes sold in Las Vegas and numerous properties in other major metropolitan areas, such as Miami, Phoenix, and Prince George’s County, Maryland, a suburb of Washington, D.C. Furthermore, in addition to an individual investor who may own a handful of properties, institutional investors such as hedge funds, private equity firms, real-estate investment trusts, and other corporate entities are flocking to the market.

The report released today agrees that investors play an important role in a housing recovery. By absorbing excess inventory, they establish a floor for home prices and jumpstart appreciation. Responsible investors can also offer quality, affordable rental opportunities to families who may be locked out of homeownership due to foreclosure or lost wealth from the recession.

But as Edelman points out, there are serious risks associated with leaving neighborhood recovery in the hands of private investors. Irresponsible investors can destroy communities by allowing properties to sit empty, declining to bring rental properties up to code, and neglecting tenants’ needs in instances where the home is occupied. Additionally, investors that buy large quantities of properties in a single area can cause prices to overheat and increase market volatility. Conversely, if institutional investors following a set business plan sell numerous properties in the same timeframe, prices in those neighborhoods could decline again.

Given investors’ powerful impact on the housing market, it’s important that policymakers monitor investor activities to limit their possible negative impacts. As the nation faces a new, larger, wealthier, and more sophisticated generation of investors, the need for oversight has never been greater. 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. To that end, the report lays out four strategies for insuring a lasting housing recovery that strengthens the national economy while creating affordable homeownership opportunities for qualified buyers, including:

Help homeowners stay in their homes. More than 2 million households are still at risk of foreclosure in the United States. When possible, preventing these foreclosures is the first step toward a strong housing recovery. Allowing more of these families to lower their monthly mortgage payments through refinancing or principal reduction could help millions of families avoid foreclosure.
Level the playing field for owner-occupants and mission-driven organizations. Households and community groups that are unable to access credit are struggling to compete with cash investors to buy homes. With a more level playing field, buyers who are more rooted in the community than the average investor would be better positioned to own properties in their neighborhoods. Encouraging more local buyers may be a less risky neighborhood stabilization strategy than relying on outside investors that are less likely to stay.
Monitor and manage investors. Ensuring that investors take care of their properties is key to leveraging investment for the benefit of the community rather than to its detriment. Local officials should pay particular attention to how well institutional investors care for their properties. Federal regulators must pay attention to the activities of institutional investors, particularly if a new market develops for securities backed by these investor-owned properties.
Get the mortgage market working again for America’s families. A robust and lasting housing-market recovery will require a resurgence of owner-occupant homebuyers, yet the ability to secure a mortgage for a home has become elusive to many Americans. The nation urgently needs housing finance reform to make sure that we have a well-functioning secondary market that can serve all communities.

Read the report: Cash for Homes: Policy Implications of an Investor-Led Housing Recovery by Sarah Edelman

To speak with a CAP housing expert, contact Katie Peters at "> or 202.741.6285.