Government Agencies Curb Large Investors from Gobbling Up Homes
In 2021, one-quarter of single-family homes nationwide were sold to investors. Companies were fast to outbid potential homeowners on starter homes so that they could quickly renovate and flip them for a large profit. The rental market took a hit as investors would substantially raise rents upon purchase. Panic spread as the average person could no longer afford to buy or rent properties with surging real estate prices. Luckily, we have started to see this trend decline and state agencies are helping to make it possible.
According to an analysis of data provided by CoreLogic, a California data analytics firm, investors bought 24% of all single-family homes sold in California in 2021. On January 1 of this year, California’s new “First Look” policy became effective. Found in Civil Code § 2924p, the new law requires institutions who acquire a 1–4-unit residential property at a foreclosure sale to only negotiate with or sell the property to certain eligible bidders for the first 30 days after listing the property for sale.
The law defines an institution to include any of the below criteria that has foreclosed on 175 or more residential properties in the prior annual reporting period.
· A depository institution chartered under state or federal law
· A person licensed under the California Financing Law in the Financial Code
· A person licensed under the California Residential Mortgage Lending Act in the Financial Code
· A person licensed under the Real Estate Law in the Business and Professions Code
The law defines an eligible bidder to include any of the below criteria.
· A prospective owner-occupant (subject to certain restrictions)
· A nonprofit corporation that meets four specified requirements, including that its primary activity is the development and preservation of affordable rental or home ownership housing in California
· A community land trust based in California
· A limited-equity housing cooperative based in California
· The state, the Regents of the University of California, a county, city, district, public authority, or public agency, and any other political subdivision or public corporation in the state
The First Look law will hopefully give the average potential homebuyer a fair chance at auction, as well as potentially decrease investor-owned rentals.
Another state looking to make a change in Georgia. According to Redfin, investors bought nearly 33% of all homes for sale in Atlanta during 2021. That is the highest share in any major city. 75% of residents in College Park, an Atlanta suburb, are renters. Georgia has fewer statewide landlord-tenant restrictions than places like California, with limited regulations protecting the tenant. So when a developer requested permits for a “build to rent” subdivision that would never be offered for sale, they were immediately turned away.
Other states are also following suit with the introduction of a bill in Ohio that imposes a 45-day waiting period once a private investment firm offers the highest bid on a rental property in foreclosure. During the waiting period, the tenant has the option to buy the property if they can match the bid and live there for at least one year. Likewise, during that period, another party is eligible to purchase the property if they outbid the investor and tenant, as well as agree to live in the residence for at least one year. At the conclusion of the 45-day waiting period, should there be no applicable bids, the investor will be able to purchase the property.
Homeowner associations are also stepping in. Some HOAs have been adopting bylaws that ban or put a limit on the number of rentals allowed within their subdivision. They also have been implementing other requirements such as mandating that a new homeowner wait a certain number of years before they’re allowed to rent out the property.
It is with these added efforts that individuals should remain hopeful that the housing market will slowly, but surely, stabilize once again.
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