Legislation Takes Aim At Hedge Fund Landlords — But Challenges Remain

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Mitchell Parsons’ job has become more challenging in the years since the pandemic turned the nation’s housing market on its head. 
As Director of Operations for the Midtown Assistance Center in Atlanta, Parsons helps oversee a team that provides assistance to low-income Atlantans through job support, food pantries and rental and utility assistance. 
While most of the tenants Parsons helped with rental assistance lived in properties owned by local owners in the years leading up to the pandemic, homes obscured by anonymous limited liability companies and managed by gigantic property management companies with byzantine rules began to flourish during COVID as mortgage rates dropped and larger corporate landlords with capital scooped up investment properties nationwide, executives told Inman.
In dealings with property management companies like Progress Residential and Invitation Homes, Parsons said he and his team now feel like they’re navigating complex bureaucracies instead of property managers and landlords.
“A problem I run into a lot of the time is the company is so big you call in on the main number and you can’t actually talk to the person that does that work,” Parsons told Inman. “And then there’s the people that represent property in my area versus the people that do rental assistance versus the people that handle eviction. When you just need to say, ‘Who can I send a check to?’ it can sometimes become a navigational nightmare.”
Since at least 2021, when what CoreLogic calls “mega” investors with a thousand or more homes bought up approximately 3 percent of homes for sale   — up from about 1 percent in previous years — housing advocates have raised alarms over the accelerated pace of corporate purchases and the threat to tenants, particularly in warmer climates with relatively cheap homes, such as Atlanta and Phoenix. 
In Atlanta, where an estimated 42.8 percent of homes sold in 2021 went to investors both institutional and smaller-scale, and Phoenix, where 38.8 percent of homes sales went to investors that same year, according to CoreLogic, tenants and homeowners alike have been walloped by increases in code violations, rent hikes and a loss of more than $1 billion in equity, experts told Inman.
Now, the widening trend has caught the attention of Capitol Hill, where proposed legislation introduced by Oregon Sen. Jeff Merkley, a Democrat, seeks to crack down on large investment funds gobbling up the nation’s housing stock by instituting an annual federal tax of $20,000 per home on corporate landlords with more than 100 properties in its portfolio. The so-called “End Hedge Fund Control of American Homes Act” was introduced in December and referred to the committee on finance but has not progressed any further or been voted on. The bill appears not to have the votes to pass as of now, but that could change quickly.
Representative Adam Smith of Washington, also a Democrat, introduced a companion bill in the House.
“Hedge funds are driving up costs for renters and homeowners alike by muscling out hardworking families and acquiring large swaths of single-family homes in cities across the United States—from Atlanta to Phoenix to Charlott,” Merkley said in a statement to Inman. “This is a deeply troubling transfer of wealth and opportunity from ordinary Americans to Wall Street titans. Houses in our communities should be homes for families, not profit centers for hedge funds. The End Hedge Fund Control of American Homes Act kicks hedge funds out of the housing market so it can once again serve and benefit our families and communities.”
The legislation seeks to free up more housing inventory for homebuyers by allowing hedge funds and large investors to sell the homes they own over a period of several years, with the stipulation that they must sell at least 10 percent of the total number of single-family homes they sell per year to families, and are forbidden from selling to other investors or corporations. Nonprofits, public housing agencies, and homebuilders are exempt from the legislation.
The bill would also establish the Housing Trust Downpayment Fund, into which tax revenues generated by the bill would be deposited to provide grants for families in need of down payment assistance to buy a home.
The legislation has been introduced in the Senate but has been held up in committee and has not yet gathered the votes it needs to pass. In the meantime though, it’s garnered criticism from some in the housing industry.
A drop in the bucket?
Critics of the legislation have pointed to the relatively small number of homes owned by large investors on the national level, with one report from the Department of Housing and Urban Development finding that institutional investors bought just 3 percent of the homes sold on the national level in 2021, the year often cited as the peak of the investor wave. 
“The overall numbers are so small right now,” Kurt Carlton, co-founder and president of the real estate investment marketplace New Western told Inman. “I don’t think they are driving prices up at all.” 
Critics also point out that many of the homes owned by investors are being used as rental housing, a product that is greatly in demand as more Americans become long-term renters and the homeownership rate drops. If corporate investors were forced to sell off their portfolios, tenants would be forced to move as well, Carlton argued. “You’re talking about a major displacement of tenants,” he added.
It’s not only those in the real estate industry who work directly with investors raising concerns about tenants. Professor Brian An directs the Master of Science in Public Policy Program at Georgia Tech and has researched the effects of corporate landlords in Atlanta extensively. 
An said institutional investors’ extensive targeting of single family homes has made it harder for everyday Americans to achieve homeownership — at least, in some markets. But he, too, is concerned about the displacement of tenants that a bill like the “End Hedge Fund Control of American Homes Act” could bring. 
“We cannot ignore the renters who are already occupying these single-family rental homes,” An said. “Without their demand, there wouldn’t be so much supply.”
U.S. Rep Tom Emmer, a Republican from Minnesota, echoed some of those concerns during a June 2023 hearing on the issue of investor-owned single family homes.
“We must not forget that single-family rental homes fill a gap for a large population of our country who either prefer or need to rent,” Emmer said. “We cannot demonize institutions for facilitating this supply of quality housing that otherwise would be out of reach for many Americans.”
An’s research has explored the long-term effects of the steep rise of institutional landlords on Atlanta neighborhoods. One paper he co-authored with Nicholas Polimeni of the Georgia Institute of Technology published in April uncovered that Atlantans collectively missed out on over $1.25 billion in real estate equity as homeowners were pushed to the side in favor of corporate interests in the years following the great recession. 
Among other key findings in the research was that corporate landlords tended to pay significantly less — 37 percent on average — for a property than the typical homebuyer, and when they sell their homes, tend to sell them for higher than the typical market value.
They also found that corporate landlords are more likely to have housing code violations than smaller landlords, with large landlords in the Atlanta area five times more likely to receive code compliance complaints from either their tenants or their neighbors when compared to other property owners, and that corporate landlords are more likely to raise rents significantly higher. 
A search for solutions
While An acknowledges the need for change, he is critical of the “End Hedge Fund Control of American Homes Act” for its failure to take existing tenants of hedge fund owned properties into account. 
“What do we do with renters who are already occupying those homes? Are we going to just kick them out?” he said. “We’ve got to think about their welfare.” 
He also takes issue with the legislation’s lack of specifics for how the federal government would go about enforcing the tax penalties for businesses that own more than 100 single family homes, especially since there is no current mechanism in place to track exactly how many homes are owned by a given institution because many homes are “owned” by anonymous LLCs formed by investment funds. 
“It’s not really clear how the government would identify how many homes these corporations exactly own, especially for private equity funds, who do not need to report their subsidiary corporations to the SEC,” An said. 
Among the potential solutions proposed by An and Polimeni through their research are the implementation of rental registries — localized databases of rental properties that include detailed information about the property owners. While many cities and states have rental registries, they are banned in some areas, including in Georgia.
Additionally, they recommended cities like Atlanta and Phoenix, which currently have very few tenant protections in place, institute stricter protections for tenants. They theorize that the lax tenant protections in many Sun Belt cities are what helped make them a target for institutional investors in the first place. 
“I think the government can send a strong signal to business actors that in this city, in this state there is high risk of penalty if you don’t do business properly,” he said. “If you give them those kind of signals than I believe those corporations will be more responsible in terms of building maintenance and rent charging.”
Most of all, what An said the single-family rental sector needs is better oversight, on both a national and local level.
“There is no oversight mechanism,” he said. “Right now people don’t even know which properties are owned by whom, and that’s a mess, that’s really unfortunate.” 
This was evident during a recent exchange Parsons, of the Midtown Assistance Center, had with a large property investment company, in which he was trying to help a client with rent assistance who had mailed in her money order for rent before Parsons had a chance to finish processing the information he needed to write out a new check for the payment.
When Parsons got the person in charge of rental assistance on the phone to explain their situation, they received a response that the company would only hold onto his clients money order for two days — per company policy — instead of holding onto it while the check from the Midtown Assistance Center made its way through the mail. 
The representatives also refused to receive a check via email — which Parsons said is standard practice for his organization — simply because it went against company policy. 
This resulted in a highly distressing situation for Parsons’ client, who was faced with being labeled as delinquent with rent. 
“She was practically having a panic attack, it was causing her anxiety, it was affecting her heart and she felt like her blood pressure was up,” Parsons said. “And they just did not care.”
His client ended up moving out of her rented apartment rather than risk eviction proceedings being taken out against her. 
“I didn’t get to help her at all,” Parsons said. “We felt like failures.” 
Email Ben Verde