Community associations across the country have begun to fight back against the corporate investors who have changed the nature of the communities.
In Charlotte, N.C., over recent years, highly funded corporations have been buying thousands of homes in the area and adding them to their growing rental portfolios. This activity has resulted in a lack of affordable housing for homebuyers and a high turnover of renters, resulting in an outcry amongst associations looking to protect their communities.
The Biden administration has identified the corporate activity throughout the U.S. as one of the factors in an ongoing housing supply shortfall, and the administration is seeking to address the issue by requiring federal housing agencies to prioritize individual homebuyers.
Corporate investors flush with cash are able to make offers far over asking price, beating out the average homebuyer. Individual communities have been adopting rental restrictions that limit or prohibit the investment companies from renting properties.
“We are receiving multiple requests each week from communities that feel they are being overtaken by large corporate investment firms that buy up properties as soon as they hit the market, sometimes even before,” says Stephen Sellers, a partner with Sellers, Ayers, Dortch & Lyons law firm in Charlotte.
This corporate activity not only makes it harder for the average homebuyer to find a home, but it also drives up price. While the issue is impacting many communities, a Washington Post analysis of data from real estate company Redfin shows that it disproportionately affects majority Black neighborhoods. In fact, the data found that corporate investment accounted for 30 percent of home sales in majority Black neighborhoods in 2021, while only accounting for 12 percent in others.
Corporate investment also causes concern amongst community associations looking to minimize the number of renters in their neighborhoods. A higher number of rental homes can have a negative impact on property values, and they can be disruptive to a community’s environment.
“Corporate investors come in, buy property, and change the character of the neighborhood,” says Michael Hunter, a partner with Offit Kurman law firm in Charlotte.
Often, the renters leasing corporate-owned housing are not properly screened according to association standards and come and go quickly, creating a higher risk of property damage, nuisances, and even safety concerns.
“Most of the managers I have talked to have told me that in communities with a lot of rental properties, the majority of the trouble comes from the rental homes, not those that are occupied by owners,” says Hunter.
Many associations in the Charlotte area are beginning to address this issue by capping the number of homes in a community that can be rented; others are restricting homeowners from leasing properties for the first 12–24 months of ownership. Hunter says this method “kills the business plan for the corporate investors.”
While some investors have pushed back at associations attempting to establish restrictions, Hunter says that he hasn’t had any issues. He suggests that associations can protect themselves by exempting existing rental homes from a newly installed rental cap or waiting period.
It can be difficult to find a balance between deterring corporate investment and preserving homeowners’ rights to use and lease their properties.
Sellers explains that it tends to depend on community engagement. “Sometimes that balance is possible to achieve. Other times, particularly in disengaged communities where meeting turnout and participation are lacking, there’s little we can do to help slow the influx of investment purchases,” he says.
CAI supports the Biden administration’s plans to limit investor purchases of foreclosed properties.
The administration will require federal housing agencies, such as Fannie Mae and Freddie Mac, to offer foreclosed homes for sale to buyers who will live in the home as their primary residence prior to accepting bids from corporate buyers. The administration also will require federal housing agencies to offer foreclosed properties for sale to nonprofit organizations with a homeownership mission before accepting bids from corporations. Because federal housing agencies own, guarantee, or insure 70% of all outstanding mortgage debt, this policy change will allow homebuyers and housing nonprofits to submit offers on foreclosed properties without competing against cash offers from corporations.
CAI believes the plan levels the playing field for households seeking to purchase a foreclosed property as their primary residence.