Experts say investment companies contribute to already-low housing inventory

Private companies are buying up single-family homes across the country, state and Johnson County — a move some experts say is adding pressure to an already tight housing market.

Several large corporate investment companies own hundreds of homes across Johnson County, with the highest concentrations in Greenwood and Franklin neighborhoods.

Leading companies that own homes in the area are Toronto-based Tricon Residential, Las Vegas-based American Homes 4 Rent, Arizona-based Progress Residential and Atlanta-based First-Key homes.

It’s difficult to track how many homes exactly each company owns, because the companies and their subsidiaries frequently use different names to purchase homes. However, each has between 10 to over 40 homes listed on their respective websites for rent in the Johnson County area.

Progress Residential currently has the most, with 41 homes listed for rent in Greenwood, Franklin and Whiteland on their website as of Friday. Progress owns at least 104 houses in the county, according to property records. American Homes 4 Rent has 38 homes listed on their website, Tricon has 34 listed and FirstKey 31.

Around 200 single-family homes were listed for rent in Johnson County as of Friday, according to Zillow. For comparison, there were 285 single-family homes for sale in July, according to data from MIBOR Realtor Association.

While there are critics, company and industry representatives contend they are filling a void for people who can’t afford to buy a home in the current market, and they are bringing diverse housing options to communities. They also contend the main issue is the general housing inventory crisis and growing demand, not their investments.

“Single-family rental home companies are simply responding to the need for quality, affordably-priced housing in communities where resident demand is behind the push for more housing options,” said David Howard, executive director of the National Rental Home Council in Washington, D.C., which represents rental home investors large and small.

These home rental companies have been around since after the 2008 recession when the housing market crashed and many homes were put on the market for purchase. Interest in investing in homes has increased more in recent years though because of a shift in investment interests, said Sara Coers, associate director of the Indiana University Center for Real Estate Studies in Indianapolis.

There is money to be made in single-family homes now, more so than in office and retail or the crowded industrial real estate market, she said.

“It’s very competitive, and they can come in and can be cash buyers, they can get what they’re looking for,” Coers said. “So, it’s really a matter of it’s a trendy investment.”

Squeezing the market

Coers described several different compounding effects on the housing market as a “perfect storm,” where there is a supply-demand imbalance and more people, particularly Millenials, are coming into the market for the first time. On top of that, investors also compete for the same type of homes.

Many first-time buyers are looking for houses in the $300,000 or less range, which are typically older homes. Investors are also buying those homes too. Rising interest rates, inflation, supply chain issues and more are also contributing to the storm.

“Basically, what’s happening is we have this limited supply of things under $300,000. And we have all these buyers competing for that small pool of homes and it pushing prices up,” Coers said. “… just everything sort of coming together and creating a very small home supply with a very large demand.”

Ron Rose, a Greenwood realtor, said peak interest for investors is $300,000 or less, and that inventory in Johnson County is already scarce. Some neighborhoods in Greenwood and Franklin have about 50% rental homes, he said.

The increasing number of rental homes in older neighborhoods built in the early to mid-2000s makes it harder to serve first-time home buyers, Rose said. It is difficult to compete with all-cash, often “site unseen,” offers from investors, unless a seller explicitly decides to not sell to a company.

“As far as the buyer side, it’s just there’s so much pressure,” Rose said. “It is tough for the first-time homebuyers, and there’s just not inventory under $300,000. It’s so limited. It’s hard to even talk about.”

Rental home companies can also squeeze more in rent from tenants, typically at a higher rate than what the monthly cost of a house payment would be, Coers said. Most of the houses for rent in Johnson County cost between $1,500 and $2,000 a month.

Coers said companies can “squeeze” people who are paying 50% of their income in rent, but a bank would never give a mortgage that would cost a person half their income a month.

“If it’s a $2,400 rent versus a $2,400 house payment, the qualification standards are completely different,” Coers said.

That system can force people to stay renters, she said. People who cannot buy a home yet will look to just rent a home that fits their interests, she said.

“It just forces more people, when they can’t buy a home anyway, when there’s not enough supply, when they can’t compete, it forces them to become renters,” Coers said.

Howard said the state of the housing market affects rent, as well. Rent is typically determined by the local housing market conditions. He said the National Association of Realtors recently estimated the housing market is under-supplied by 7 million units, which causes prices and rent rates to increase.

“Rent can increase or decrease depending on the relationship between supply and demand. Over the past decade or so, the supply of housing – both ‘for sale’ and ‘for rent’ – hasn’t kept pace with demand,” Howard said.

Company says impact is ‘minuscule’

At Tricon Residential, the company prides itself on putting its residents first, said Tara Tucker, vice president of marketing communications at Tricon.

She said the company helps its residents financially to help them buy a house, so they aren’t stuck being renters.

“We really do care about our residents … we don’t want anyone to stay in a rental home for longer than they need to,” she said.

She also said the amount of homes Tricon purchases is “minuscule” in the grand scheme of the housing supply issue. The company is trying to add to the supply, rather than take away from it, she said. Tricon is currently developing homes, mostly along the Sun Belt in the southern and southwestern United States, but not in the Midwest.

Rental home investors say their practices are not leaving a large impact on the market itself. Howard said owner-occupied homes have increased by 11% in the last five years, compared to the 1% increase in rental housing, according to Census Bureau data. He also said home buying, in general, is increasing more among young people.

“Rental housing today accounts for a smaller share of the overall market than it did five years ago,” Howard said.

Other investment companies Progress Residential, American Homes 4 Rent and FirstKey did not respond to requests for an interview or deferred questions to the NRHC.

A solution?

Some homeowners associations across the state have attempted to put a stop to rental homes increasing in their respective neighborhoods, Coers said. Some are adding that new home buyers have to live in a house for at least a year before listing it for rent. That can deter investors, who would not live in a house once buying it.

Individual sellers can also decide to not sell to a company. Rose recently had a client receive three corporate offers and three owner-occupied offers. His client opted to sell their house to a local family because they didn’t want their neighborhood to turn into a rental neighborhood.

Coers also said that the housing market could eventually naturally push investors out as interest fades over time.

“There’s only so much rent people can afford, especially in a place like Indianapolis, you know, where our median household income is not very high,” Coers said. “So, we’re going to see people who’ve reached the upper limit of their ability to pay the rent, and they’re not going to rent those places anymore.”