How Investors Accelerate the Affordable Housing Crisis
Investor purchases accounted for 24 percent of all residential real estate sales in Boston in the fourth quarter of 2022. A 10 percent tax on those sales could yield $82 million in revenue.
Blogging Our Great Divide
March 21, 2023
by Omar Ocampo
With billions of dollars of cash on hand, and millions of working-class families unable to find affordable housing, corporations are increasing their share of the housing stock and expanding their portfolios. A 2021 report co-authored by the Institute for Policy Studies, Bargaining for the Common Good, and Americans for Financial Reform Education Fund demonstrated how corporate and institutional investors were well positioned to take advantage of a red-hot real estate market. In the final quarter of 2022, investors purchased more than $31 billion worth of residential property in 40 of the largest metropolitan markets in the country – not a small sum.
Digital technologies helped facilitate this process. New business models like iBuying – which allow companies to instantly assess the value of and make offers on properties that are then resold – provide corporate landlords with privileged access to residential homes. Real estate tech companies are transferring close to a quarter of their inventory directly to institutional investors off market. Even when these tech firms go belly up, thousands of homes are snapped up by Wall Street, granting the latter greater undue market power.
All of this translates to a more expensive real estate for working families, as unlisted corporate purchases lower the housing supply available to thousands of households. As a result, four out of five homes are now classified as unaffordable to median income earners, up from just half a decade ago.
“Housing affordability is at the lowest level in history,” declared Taylor Marr, deputy chief economist at Redfin, in a recent interview.
The ever-expanding presence of corporate landlords also increases precarity for renters. Large portfolios incentivize the development and use of software to automate property management and eviction filings to the detriment of tenants. The aggressive pursuit of evictions and unwillingness to negotiate alternative resolutions to ensure families remain housed highlights the need for more robust tenant protections.
Potential Revenue from a Tax on Investor Purchases of Residential Properties
A tax on institutional investors could dissuade corporate purchases, giving working-class households an equitable opportunity to buy a home while also generating revenue for affordable housing. To illustrate the potential revenue a 10 percent tax on investors could generate, the Institute for Policy Studies analyzed the sale records of Boston, Massachusetts in the final quarter of 2022. Any record where the buyer’s name included the words “LLC”, “Trust”, “Corporation”, “Partnership”, “Inc”, or “Homes” is categorized as an investor. The methodology excludes all transfers where the transaction was less than $1,000.
Investor purchases accounted for 24 percent of all residential real estate sales in Boston between October and December of 2022. The total value of their residential acquisitions was $820 million, with a median sale price of $1.1 million. A 10 percent tax on all investor purchases could yield $82 million in revenue.
Boston is just one city where investors are snatching up residential properties. If a 10 percent tax on investor purchases were in effect in Boston as well as the country’s nine other top housing markets, it could’ve generated a total of $1.4 billion just on 2022 fourth quarter sales alone.
The time for our elected representatives to address the affordability crisis and guarantee dignified housing for all is now.
The solution is straightforward: the federal government should ramp up the production of decommodified public housing to put downward pressure on real estate prices. All newly constructed housing should serve the social needs of our communities instead of further enriching corporations and institutional landlords.
A federal tax on institutional buyers has the potential to generate significant revenue to help fund the construction of new public and social housing.
The lack of housing affordability is the direct result of commodification – the use of residential real estate as an asset for the purposes of financial speculation and capital accumulation. The sooner we start treating housing as the public good that it is, the sooner we can create an economy that works for everyone.