← The Rent Roll with Jay Parsons
The Rent Roll with Jay Parsons
EP#67 Joshua Coven | Top 10 Myths About Institutional Investors In Housing
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Welcome to the Rent Roll, your podcast on all things rental housing, apartments, single family rentals, and Build to Rent. It's episode number six. Yes, it's episode number 67 or 67. Those were my five kids who just heard shouting six, seven or six seven. They have been counting down the weeks and the episodes to get to number 67 or 6 7. If you don't get reference, then you are blissfully unaware of the Gen Alpha lingo and also Dictionary.com's 2025 Word of the year. So yes, the word of the year was a number. All right, moving on. All right, so last week I told you that we'd be Talking about our Q1 multifamily update and outlook, and I had every intent of doing so. But then of course, we had some big news dropped on us the latter half of last week, and that was, of course, President Trump wanting to ban institutional investors from buying single family homes. So I apologize for the shift, but I hope you understand the pivot. And I I will be covering the multifamily topic in next week's episode, episode number 68. We have good guests with us for that one as well. But given this was the topic of the day, I do want to just pivot and focus on the timely issue that's at hand. Also of note, I just put out a newsletter over the weekend that breaks down what we know and what we don't know about the SFR proposed ban, as well as summarizing comments from FHFA Director Bill Pulte, as well as reactions from some of the SFR execs who hit the media circuit in response. So again, you'd find that freely available@jparsons.com so I'm not going to rehash all the basics. Instead, I want to focus on the facts, the data, the science, the research, the meat and potatoes. Okay? The data over narratives. And the narratives are obviously out there. Okay? I think most of you'll believe the narratives at this point because they've not really taken the time to dive into the facts. And so maybe we have not done a good job getting the real facts out there. So I'm going to lay out for you Today the top 10 biggest myths we hear about institutional investors. Their impact on housing, on home prices, on homeownership, on renters, on rental prices, et cetera. We'll respond to each one of those 10 myths with data, with facts and research. And then we have a very Special guest today, Dr. Josh Coven, who is a professor of real estate at Baroque College In New York City, Josh, just this month, very timely as well, won a prestigious award from the American Real Estate and Urban Economics association for a paper he wrote last year while finishing his PhD at NYU. That paper turned out to be remarkably timely and relevant. Its title, the Impact of Institutional Investors on Homeownership and Neighborhood Access. And so I could think of nobody else to have better for a myth busting episode, an institutional SFR than somebody coming from academia who's actually studied this topic. Rather than just having another exec coming in and try to rebut those things, let's bring in somebody who's not involved with institutional SFR at all, an academic, and hear what he has to say from his research that has been peer reviewed and awarded by his, his peers and, and, and, and more experienced economists and researchers as well. So you'll hear from Josh and what he found related to the impact of institutional investors on home prices, on rents, on home ownership, as well as in the fabric of these neighborhoods. All very big topics that we hear a lot of myths about. So some excellent facts I think anybody in housing policy or in the rental housing business and even home building business should be up to speed on. Now, before we do all that, I want to share one more thing. Okay. As we all see these headlines and we have different reactions to those headlines, and, and as we start to pour through some data and try to respond to those things, I was reminded this week of something really important. Okay, there's narratives, there's data, but there are real people behind all that stuff, right? There's real people living in these single family rental homes. These are people's lives. So there's a study coming out from the center of Generational Kinetics, which is headed up by my friend Jason Dorsey. And this study is based on a survey of single family renters. It was done last year, but like Josh Kovin's paper, it turned out to be remarkably timely. And I got to work with Jason a little bit on this over the past few months. And as I was going through the results, I started reading through just this week, I was starting to reading through the responses to some of the freeform questions, and particularly this question here. What is your best memory that made was made possible because you rented your single family home? Okay, so this is a question posed to single family renters. You know, it came out before the study was done back in, I think it was Q4 before all this stuff came out. And I put all those answers, and they're freeform text, I put them all into A word cloud. And I looked for themes and there was one word that popped out that I really didn't expect to see that just it was in. You know, if you ever see a word cloud, you pop, you throw everything in there into a pot. And then the more often that word is used, the bigger that that word shows up in the word cloud. If it's a word that's very rarely used, it looks really small. Okay, so one word that was really big was. Was.
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Able. A, B, L, E, able. And so I started going through all these responses looking for able. And what I read, it touched me really deeply, honestly, and I think anybody with a heartbeat would have been touched as well. Let me read to you some of the things I read written by single family renters in this survey. Being able to have family and friends over and have an event in the backyard. Being able to have a nice large yard for the kids to play in. Being able decorate for holidays. Being able to do birthday parties in my own home. We were able to have everyone over from both sides of the family to our house for Christmas dinner. We finally had enough room to fit everyone. My children were able to have their own fenced in yard so they can play outside. Having the space to host family gatherings. Being able to cook dinner, laugh, and spend quality time together in a comfortable home has meant so much to me. Being able to play with my kids in their very own backyard. It was a new experience that I was able to have family holidays hosted at my home. Able to give both of my children their own room and bathroom. My kids having a yard to be able to run with our dogs and play in. Being able to make a garden. Being able to grow and create a family and make memories. So that word able, it hit me hard. You know, I'm a homeowner with kids and you just heard my kids earlier on this podcast. And for many of us who have been homeowners for a a while, I think we could take so much of this for granted. Being able to have a yard for our kids to play outside. Being able to host a birthday party, being able to have family over for Christmas dinner. You know, these are simple things to many of us, but it's a big thing to people who may have been living in an apartment that didn't have the space for it, or maybe you were living with doubled up with other families and they are able to have their own place even if it's to rent. And so it reminded me that beyond all the data, it's humanity. It's People, not every family can afford a house or is ready to buy a house or even has the credit score to qualify for a mortgage or the income to pay the more than $1,000 additional monthly cost to be a homeowner today versus a single family renter. And even for those who may have all that, you know, plus the down payment tab as well, even people who have all that, they might not be in a life stage yet where they're ready to be tied down to a mortgage yet. So don't get me wrong, homeownership is a great thing. I've been a cheer anybody who's listening this podcast really since the beginning, you know, or follow my stuff on LinkedIn and elsewhere. You know, I've been a cheerleader for homeownership for a long time, you know, but. And I think there's a greater impact in the economy. I think rentals do better when there's more people are buying homes, there's a downward impact from more household formation, et cetera. But homeownership doesn't work for everyone. And you see in these results is that those families need homes, too. And not just an apartment, which is obviously an option for a lot of renters, but also some need a single family home where they are able to have space for a growing family to host parties, to play in their backyard, and to make memories. Okay, so we're gonna dive into a lot of data today. Let's hold on to that though, before we go in further, I want to give a quick shout out of gratitude to our headline sponsors. First and foremost, to jpi, a leading apartment developer with a state of purpose to transform building, enhance communities and improve lives. Check them out@jpi.com Also, thank you to Madera Residential, a leading apartment owner and operator based in Texas expanding into the Southeast. Check them out@maderaresidential.com okay, so as always, kick it off with the little section we call. Here's a chart. And this segment is brought to you by Mason Joseph Multifamily Finance, the number one FHA construction lender in the Southwest for a reason. Since 2016, Mason Joseph has closed as many FHA construction loans in Texas and surrounding states as the second and third place lenders combined, according to my friends over there. So check them out. Mason Joseph. All right, so here we are, our top 10 myths and the responses around the impact of institutional investors and single family homes. Number one, this will be a quick one. The myth, institutional investors are buying 25% of homes on the market. Reality. Well, remember not all investors are institutional. In fact, the vast, vast, vast majority are not. Here's a chart showing the most recent data from John Burns Research and Consulting. It shows institutional investors represented a whopping 0.5% of single family home sales most recently. It's never been above 3% of home sales in their data. By comparison, small investors with one to nine properties, and these are single family rental investors, they tend to be about 20% of home sales. So again, for the vast, vast majority of the time you hear about investors buying houses, it's typically going to be a small family business or local group. And especially you hear about people making unsolicited offers and posting flyers on, on telephone poles. That does not tend to be, and probably is not at all ever an institutional investor. So any ban on institutional buyers would be removing just a tiny sliver, 0.5% to be precise, of the buyer pool. Myth number two. The myth is renters will become home buyers if institutions weren't buying all the homes. Reality, it's not that simple. It sounds good, maybe even sounds intuitive, but it's not that simple when you really think about it. So two reasons. Number one, that view assumes that every home bought by an institution would have otherwise gone to an individual home buyer. But remember, mom and pop investors outnumber institutional investors by something like 40 or 50 to 1. So the biggest SFR investors are still out there. The biggest pool of them, I should say. And Josh Kovan's research tool to hear about later, he shows that if the institutions were not buyers of these homes, more than half of them would have gone to a smaller investor. Likely investors would have been excluded from this ban. Second point, and this probably is even a more important point. Okay. Unfortunately. And we're gonna spend more time on this than most of the other topics, so bear with me on this one a little bit. Unfortunately, most SFR investors are just not in a position to buy a house. Okay. The nation's largest institutional SFR investor, Pretium, their co president, went on CNBC last week and he said that their typical renter household income is $130,000. That sounds pretty good, right? It's above the national median. But get this. 90% of their renters cannot qualify for a mortgage. 90%. So even if we have some moderate decline in home prices because you're taking out institutional investors, that's not going to help people who still have bad credit or still don't have enough cash for a down payment. So here's some data for you. One institutional operator shared me a Chart that you'll see here showing some aggregated data on the average credit score of their SFR renters versus the credit scores credit scores of their of first time home buyers with a mortgage using mortgage data from the GSEs and they allowed me to share this with their permission. That gap is huge. First time home buyers have credit scores above 720. The SFR renters in this portfolio have credit scores hovering around or below 660. So that's a big gap representing a lot of people who are far less likely to qualify for a mortgage and yet still need a home to live in. So that ties in another point here which is in the survey I just mentioned to you, the 2025 center for Generational Connect survey of single family rental renters. I should say we have another chart here from them and it's to the question what are the biggest financial barriers impacting your ability or your desire to purchase a home? And they could pick, renters could pick up to three reasons or they showed their top three. They're ranked them. Excuse me, top three reasons. Not surprisingly, homeowner, the home prices are number one as you would have expected. But even given three choices, only 55%. So just, just about half of renters picked home prices as the biggest barrier. The next three were my credit score is too low, I can't afford the down payment, interest rates are too high. And then the reason after that, the fifth highest reason was property taxes are too high. And so that tells us it's not just about home prices alone. There's a root issue of affordability that if we really have to address if we really want to move the needle in helping boost homeownership and helping more renters go out and buy homes. And that for the record, I want to be really clear on this, like that's the root issue and that's what we should really address. That would be a win. And again I talked about this a lot, but I think more homeownership, more people leaving to buy homes actually a good thing for, for even for sfr. SFR has done better historically when more people are leaving to buy a house because you're backfilling those units faster and a higher rent. So I think it's a win win for everybody. So but we got to put the focus on the root, on the root issue, not just chasing a boogeyman. Last thing I want to point out, even if we solve the affordability piece, we need to remember that some people will still want to rent at least for some stage of Life. Another thing we saw in this renter survey, it showed us that a lot of families rent for lifestyle reasons. Meaning like they want, they want to have some flexibility. You're not being tied down to a mortgage. They have some planned relocations in the future. It's maybe some. There's a strong preference not to have to worry about maintenance or property taxes as well as other lifestyle reasons. So those families need access to quality homes too. And again, probably not just apartments. And everyone's going to fit into apartments somewhere past that stage of life. All right, myth number three, institutional landlords are pushing up prices, pricing out home buyers. All right, so that's going to tie into our last topic obviously. And so, but now we're taking from a different direction. Okay. The reality is when people say this, it's a gross oversimplification. Now obviously, let's acknowledge this. Every sale plays a role in setting prices. Of course, you know, in the, in the, in the real estate business you call them comps, right? Doesn't matter if it's a commercial property, multifamily, a single home, we have comps. Every sale can be a comp. But again, institutions are just 0.5% of home sales today. Freddie Mac researchers conducted an extensive analysis of the post Covid home buying boom that drew up prices in 2122. So the paper came out in 2022. So it came from that period. And they concluded this. This is a quote. What may surprise you is that investors do not make our top list of drivers for home price growth or I'm sorry, make our list of top drivers for home price home price growth. Instead, Freddie linked price growth in that era to what I think are probably less sexy reasons. Low mortgage rates, underbuilding an increased number and first time homebuyers due to demographic factors as well as increased migration from high cost cities into lower cost areas that were already wrestling with a low single family supply. There's another piece of important and maybe ironic nuance this as well. So going back to the great financial crisis, you know, that's when of course we first started to see institutional investors coming into the single family, single family market and buying homes, turning into rentals. Well, back then some of you have been around long term. Remember the institutional capital was hailed as rescue capital. We saw that term a lot. Stabilizing the housing market. Researchers from the University of Texas at Dallas found that institutions can play a role in protecting homeowners equity amidst a falling market, they wrote. They said these findings demonstrate how investor activity can stabilize housing prices in Distressed markets which can help protect the value of neighborhoods of neighboring homeowners equity. So much of the research around institutions impact on, you know, upward impact on prices. A lot of that traces back to the post GFC period when homebuyers were largely sidelined. And that quote, unquote, rescue capital contributed into reversing the long drop in home prices, thereby helping homeowners reverse equity losses and stabilize the market. And so it's a little bit of revisionist history to now go back and say, well institutions drove up home prices without including that context. And furthermore, if you did remove institutional capital, you remove their ability to stabilize a declining market where individual buyers are sidelined like they were in the early 2010s. One more thing on this, let me read you from another paper, this one from the American Enterprise Institute. They wrote, quote, if institutional investors are the prime driver of prices, the hard causality pattern will be hard to miss. But not so much in reality. Since 2012, national home prices have risen roughly 150%. Yet some of the fastest growing markets, including San Jose, Bend, Oregon, Providence, they've had virtually no institutional presence. Meanwhile, several metros with higher investor shares have seen below average price growth. Econ 101 scarcity, not financialization, does the heavy lifting here. So again, that's not to say there's zero impact, not suggesting that at all. But in our conversation later with Professor Josh Kovan, he'll share why that impact is like to home price is likely much less than most people think. All right, myth number four. Institutional investors are creating bidding wars and pushing out regular homebuyers with all cash offers. Reality. Well, contrary to public perception, especially today, most in last really decade, most institutional SFR groups are not looking to be market topping price setters. Unlike individual home buyers investors, they have to prioritize cap rates, yields and market topping prices are generally going to crush yields. Institutions especially really all investors, they hunt for value. They favor undervalued properties such as homes requiring major repairs. As Freddie Mac note in the research paper I noted earlier, institutional and small investors both heavily target under market value homes that need more repair than what most first time homebuyers are willing to invest. And remember that individual homebuyers may have trouble financing homes that require heavy repairs, so they need more upfront cash to pay for it. And I'll share some data around that shortly. Whereas many institutional SFR operators have in house crews that can do that at lower cost. So that's not to say that an investor never wins a bidding war, but there's no real data that shows that's a common occurrence for I would say, a regular home. And another thing I'll point out is that when we hear about investors winning these bidding wars, some people are oftentimes think conflating institutional SFR operators with other types of investors such as iBuyers, Flippers or some local and SFR investors who may be getting ahead of their skis. So you need to understand what type of investor we're talking about. All right, number five, institutional. The myth is institutional investors with all cash offers are buying cheaper homes will otherwise go to first time home buyers. All right, so this ties into our myth. Number four, it's another gross oversimplification. Again, let's circle back to the Freddie Mac paper. In 2022, it said, quote, most investor purchases were for deeply discounted homes below the typical home bought by first time home buyers. So people say they're buying smarter homes, they're actually buying at prices even below what we see first time home buyers buying. Now that's something that no one ever talks about. They also said this institutional and small investors, I read this earlier, they target homes that need more repair. And the homes any more repair than what first time home builder home home buyers, excuse me, are willing to invest and get the stat. Half of institutional Investor purchases in 2020 were priced below the lower quartile price paid by first time home buyers. And then as I just noted earlier, there's also research by the Urban Institute that found institutional investors spend far more on repairs than do traditional home buyers when buying a house. And I'll talk more about that in a moment. And before I do though, our guest today, Josh Coven, he's going to share his own research that concludes that even if institutional investors are removed from the market, more than half of those homes would have otherwise been bought by smaller investors. And again, I think I mentioned that earlier, but I think it's that point's important to bring up here as well. So those cheaper homes, even if institutions are sidelined, you're going to have other investors that slide in and buy a big chunk of those homes. And meanwhile, as we also know related to this, that most institutions are not buying individual houses off the MLS anymore these days anyway. That's kind of a dated perception. A lot of them have moved on to new construction and to buying smaller SFR portfolios. All right, so let's dig more into this condition of the home topic because this one comes up a lot. So myth number six, institutional investors are letting houses fall into disrepair. Right, Maintenance. So reality is it's usually the opposite. I mentioned earlier some research from the Urban Institute on, on, on maintenance topics. Let me read this to you. This is a few years old now, I think, but it tells you something about just this, this topic. It said two of the largest single family institutional buyers. Annual reports illustrate the substantial amount institutional investors spend on these renovations. Even with the volume discounts, The Imitation Homes 10K indicates that it spent $39,000 per home for upfront renovations completed during 2020. American Homes for Rent or now AMH. Their 10K for 2020 notes that they spend between 15 to $30,000 to renovate a home acquired through traditional acquisition channels. This is considerably more than the $6,300 we calculate the typical homeowner spends during the first year after purchasing a home. So there you go. There's some, some real facts and frankly, you know, when you have homes that mean major repairs, that is a significant advantage for investors, particularly for larger investors that have maintenance crews in house to do the work. In fact, I'm going to go back to that that renter survey I mentioned earlier of the 2025 CGK renter survey. Single family renters surveyed were asked about the top advantage of renting from a professional property manager as opposed to a mom and pop or someone doing the side. The top two reasons they cited for large, not just institutional but just generally professional property Manager. The top two reasons were number one, more reliable and timely response to maintenance requests. Number two was related access to 24. 7 emergency maintenance services. And so you can see that ties into the data and renter experiences as well. Number seven, myth number seven. Institutional investors are driving down homeownership. You will own nothing and be happy. Okay, so as we get back into the home buying topic and frankly this is one of the dumbest myths out there because all you have to do is Google the homeownership rate. So let's break this down going back to the great financial crisis to set proper context. Chapter one. Homeownership rate soars between 1995 and 2004, setting a record high in Q2.044 at 69.2% and then hovering around that mark through early 2027. I'm sorry, 2007. Excuse me, chapter two. Then the housing bell burst crisis foreclosures and you combine that with significantly tightened lending standards, Dodd Frank particularly impacting subprime borrowers, weaker credit that pushes down homeownership rate to a low of 62.9% by Q2 2016 banks and regulators in the early 2000s. They're wrestling with millions of foreclosed homes in REO. Most of them, or a lot of them at least, sat vacant when investors, including institutions, started buying them, some in bulk on courthouse steps and converting formerly vacant homes into occupied rental homes. And then chapter three. And unfortunately most American media and policymakers, they stop reading after chapter two. But chapter three is pretty critical, okay, because this is the part where, where individual home buyers flipped the script and started out muscling investors for market share. Homeownership actually trended up between 2016 and 2023 from 20, from 62.9% up to 66% again largely because they were able to out muscle investors for price for on prices or home buyer individual. They're willing, typically willing to pay more than an investor because they don't care about the cap rate and the yield. They're looking for a home. And so they should win a lot of those bids. And they do so. John Burns wrote this. He wrote the number of rental homes in America began declining as many smaller investors sold their homes for a profit. This decline received almost no attention in the press. Harvard center for Housing Study said the same thing. They said the number of single family rentals then fell in more recent years as the for sale market strengthened in many of these homes converted back to owner occupancy. So I mean these are real things, not just industry people saying it. Harvard says it comes from census data. In other words, homebuyers ran to the market as prices climbed. Some smaller investors, they took advantage of the higher prices and they sold out. Individual homebuyers, the primary beneficiary of those exits, taking 1.5 million homes back into the owner occupied pool. So let's get to chapter four mortgage rate spike. Home prices are high. There's now a Premium, more than $1,000 a month Additional cost to be a homeowner versus a single family renter. So now we've seen a modest decline in homeownership from 66% in 2023 to 65.3% most recently as of Q3 25. So we're down 70 bips. But remember, over that period last couple of years, institutional investors have been largely sidelined as well. So and so we know so again, they think these facts do matter. And while homeownership today is still lower than it was at the height of the housing level, we know in hindsight that homeownership back then was propped up by subprime mortgage lending. And so now, guess what? We're. Our current homeownership rate is actually, believe it or not, most people probably aren't aware of this, but it's freely available. Just Google it. Look on Fred, look on the census. We're right back to the long term average of 65.3%. And if you like medians better than means, we're actually above the long term median of 64.8%. So there you go. That's the data myth number eight. We'll pick it up a little, pick up the speed a little bit here. Institutional investors are bad landlords. All right. The reality, of course, good or bad, that can be subjective, based on anyone's personal experience. Just like any business or even a government service. You know, bad experiences can happen, but there's little credible data to support this narrative at any scale. The, the renter survey I mentioned earlier, it found that only 18% of SFR renters said they have a, quote, difficult relationship with their landlord or property manager. And of course, those 18%, those are the ones we hear about all the time. They're the ones who post on social media, who make the news, and we should try to address those concerns. I don't want to downplay that, but it's important to remember they're not representative of the majority by any means. There's a very respected housing researcher, some of you know, Lori Goodman at the Urban Institute. She wrote this back in 2017. It's obviously been a while, but she wrote, there is no credible evidence that institutions make landlords make worse landlords than mom and pop companies. These investors will, by necessity and competition, bring professional standards and methods to managing these properties, making them more like their larger apartment building brethren. And if you think about it, I mean, just makes sense because from a pure business standpoint, sfr, like any business, they're highly incentivized to create a good experience for their customers. And the retention data bears this out. The most recent Data from the SFR REITs shows that renter turnover has been continually declining for 10 years, even when mortgage rates were cheap, and now they're around 25%. And so. And then today, by the way, there's more SFR listings in the market, and there have been the last few years, and yet retention still goes up. So even if you can't buy a house right now, those renters have options, but they're choosing to stay. And if it was bad, as some people think it is, I think we would see more turnover than we do. So again, even if you think institutional Investors are cold hearted profit seekers. You have to acknowledge that they're financially incentivized to provide a good experience for their customers. Who are the renters? All right, myth number nine, this is related. Myth is institutional investors increase rents more. Okay, we hear this one a lot, too. Reality is this another topic that's grossly oversimplified even by some academics. If you want to find papers that say this, you could find a few. But context is important here. So one of the things, one of the papers I see cited a lot of is from the Federal Government Accountability Office, the gao, and it's based on a line from this report. He'll post this on X. I saw a slide. It says studies the GAO reviewed found the institutional investors may have contributed to increasing home prices and rents and helped stabilize neighborhoods. But then this part gets cut off following the financial crisis. All right, so that last part is really important context, is that following the financial crisis, and if you actually read the report, it's Talking about the early 2010s period coming out of the GFC in the, in the foreclosure bust. Right. And that's important context. As I noted earlier, there is indeed ample evidence institutional investors helped stabilize the housing market coming out of the great financial crisis. And that helped end a period of decline in rents and in home prices and started the recovery. So what about since then? Well, again, if you actually read the GAO report, you'll find it cites multiple studies with conflicting views on the impact of institutional investors on rents. And ultimately the GAO report is inconclusive. It says there's no clear evidence either way. And by the way, we'll get another take on this in our conversation with Professor Josh Coven. I keep teasing that conversation, but I promise you it's gonna be good. But he addresses this too, and, and for his part, his research actually shows institutional investment led to lower rents. And so stay with us for that. And you know, Josh and I want to take too much of his thunder, but I want, this is really important, though. Josh shares that he expected to see more market power and pricing among institutions than he actually found. And so I think you'll enjoy hearing what he says about that. And I want to quote Lori Goodman one more time as well. She and her colleague Robert A. Bear at the Urban Institute, they wrote these investments don't push rents higher because rents remain a product of supply and demand. So to that point, again, it's all about supply and demand. And so in more recent years, many of the markets like Atlanta, with heavier institutional presence, they've actually seen below average rent growth for SFR because institutions tend to favor markets where they can also build supply, you know, and all. And not just, not just rentals. I'm sorry, not just sfr. I mean, it's built to rent. It's apartments. It's also for sale homes. That additional supply puts more pressure, downward pressure on rents. And that's what we've seen in places like Atlanta. And that leads us very well into our tenth and final myth on institutional sfr. And it's one of the most common pushbacks I hear it says national stats don't matter. Just look at markets like Atlanta where institutions are buying everything. Okay, Reality, there's more here than meets the eye. You know, there's two perceptions here related to this that we hear a lot. Number one, home prices are rising more in the institutionally faired markets like Atlanta because institution driving up prices. Number two, rents are rising more in institutional markets like Atlanta because institutions are having up rents. And both of those statements are misleading. And I'll walk through why and explain why large SFR operators actually do need that scale to operate efficiently and at lower costs and how that actually helps renters. So let's start first with the home prices. I mentioned this one earlier. I quoted the piece from the American Enterprise Institute. It's a piece titled America's Housing Crunch has the wrong villain. And I won't read the whole quote again, but they basically say if you look at the places that had the most home price growth over the last 10 years, it's 10, 15 years since 2012. Excuse me. It's not the place. There's a lot of institutional investment. It's places like San Jose, Bend and Providence have virtually no institutional presence. And so again, it's all about. It's about Econ 101 scarcity. It's about supply and demand. Now about rents, it's the same story. Let me read to you something from a paper written by our guest today, Josh Coven. He wrote, institutional investors increase the quantity of rentals and lower rents on net because their ability to operate large portfolios at scale outweighs the incentive to use market power to decrease the rental supply. Now, this is really important context because most people outside the industry and certainly most media and most policymakers, they've not taken the time to really understand the nuance here of how sfr, institutional SFR really works, what the business, how the business model works. And it's really important to understand this because it helped clear up this misperception. Most people see scale as a bad thing. Okay. The assumption is that if one particular institutional firm has thousands of rental homes, any given msa, they've got this massive pricing power. But first we should point out Atlanta is the market we picks on. In a market like Atlanta, no company there has I think even 4% or 5% of the single family rental market. So they look like big numbers and maybe they are in total, but it's still a small share of the total market. That doesn't give them a lot of pricing power. But more importantly, it's not just about rents so much as it is about costs. Every focus on rents. But that's just one variable that an investor needs to look at and to consider that impacts the return on their investment. So here's an example I like to use about the power scale. If one company, we'll call them Happy Co, if Happy Co has a thousand houses in Atlanta. And by the way, again, that sounds like a big number and it is, but that's the equivalent of three or four apartment buildings with that scale. Happy Co, well, they can likely hire full time maintenance teams. They can store supplies and materials and appliances on hand to do those repairs. So when someone moves out of a home, that bigger property manager, a Happy Co, they could probably fix up that home faster, which means they get it back on the market faster, which means they could lease it out faster. And thereby they're reducing what the industry calls vacancy loss, which is just the lost revenue when a unit is sitting vacant. And a friendly reminder that no one makes any money when a rental unit sits vacant. Just it's just cost, there's no revenue. So that means this is the important part. Here's the punchline that even absent higher rent, that property manager will make more money simply by reducing the number of days that that home sat vacant. Okay, that's important. That's really important. That's why scale really matters. And by the way, and beyond just maintenance, your operating costs per home are just going to go down with the more homes you have. And that allows you to operate at a lower rent, even if there's more supply added. And so scale does matter. And again, Josh, going to share more on this in a bit. That's what institutional players look at and that's what they chase. Scale matters more than just rent growth, than a vacuum. If it were just rent growth alone, they'd be flocking to cities in the Midwest, the Northeast. But they don't do that because that's not the only variable that matters. So there you have it. Top 10 myths around institutional investors in housing. Again, don't take my word for it. Stay with us for Professor Josh Coven and he'll share what he sees in his research and we'll do that later in the program. But first, it's time for rental housing trivia. All right, today's trivia is presented by landing a full service furnished housing partner, helping operators drive incremental noi. Simply landing turns vacant units into revenue. Learn more@hello landing.com partner and please do get that slash partner in there so we get credit for it. Say goodbye vacancy. Hello landing. Okay, so today's question, it actually comes from a stat I referenced earlier in the episode. So let's see if that stat stuck with you. The question is what is the net change in the number of US single family rental homes between 2016 to 2023? Is it A, we added 1.5 million single family rental homes, B, we added 500,000, C, we're flat zero or D, we lost 1.5 million rental homes between single family rental homes between 2016 and 2023. So give that some thought and we will circle back to that in a bit. But first in the news. All right, in the news this week is sponsored by Authentic. If you've got a property that's underperforming and can't quite figure out why, check out their multifamily leasing and market audit. They'll dig into your pipeline leasing funnel and comps and tell you exactly where things are breaking down, plus strategies on how to fix it. Listeners, the pod get 50% off. So head to authenticff.com click on the banner to learn more and claim the offer. Okay, so we got three quick headlines for you this week. The first one comes from everybody's favorite non scientific data set, the famous U haul migration rankings based on net flows of U haul rentals. And here's our top 10. The first three, it's all Texas, Dallas, Houston and Austin. Then we have Charlotte, Phoenix, Nashville, Charleston, Raleigh, Atlanta and another Texas market, a smaller One, the Brownsville McAllen area, which is at the Mexican border. Okay, so top three are all Texas. Number 10 is a small Texas MSA. We have three more from the Carolinas. Now we have of course Charlotte and Raleigh, but also Charleston, which is growing fast. We've we've got Nashville, we've got Phoenix. No surprises there. And then we've got the big Southeast MSA that the Wall Street Journal told us a few months back was dead. That's of course Atlanta, which apparently is not dead. Of course, that's Tongue in cheek there for those of you who are my comments on that article. And there you go. Now I don't put a ton of stock in these numbers, but they are fun to look at every year. Again, not the most precise measure for migration, but they always do seem to be at least directionally aligned with other data sets. And look at this list. Obviously heavy Sunbelt. So it's a good reminder that for all these headlines about slowing Sunbelt migration and population growth, that hasn't it hasn't stopped though. These are still the places leading the country for population growth and job growth and immigration. So my mobility and moves have slowed everywhere. But relatively speaking, the Sunbelt is still king for migration. All right, speaking of the Sun Belt, that was the good side. Here's the other side. Wall Street Journal article Rent concessions are on the rise in America's Sunbelt cities. Cities like Phoenix overbuilt upscale housing when remote workers started showing up during the pandemic. Now that extra inventory means perks for renters. All right, so first of all, I don't like the word overbuilt. Obviously it's built more supply than we had demand for. In long term, these things catch up to themselves. But the reason I bring this up is I think the Wall Street Journal really, and I've been critical where they sometimes miss something. But in this case I think they really nailed it with this comparison here. Here, let me read this. The renter friendly environment in Phoenix is a symptom of the city's enormous glut of high end apartments. It is a contrast to housing scarce coastal cities like New York and Los Angeles where renters endure cutthroat apartment hunts to find a place to live. Can it be any clearer than that? I mean, what a powerful comparison point. Cities like New York and la, they're picking on here in the article. They've for decades choked off supply and instead tried rent control, screening limitations, eviction restrictions. And what's been the result? Well, a deteriorating stock of older rentals and with constant tensions between renters and property managers and higher rents for incoming renters. And some people say, well, it's just land issues. Well, certainly land plays a part of this. But let's be honest with ourselves. There's plenty these cities can do to encourage more investment, taking underutilized commercial buildings, maybe vacant to repurpose for housing, you know, surface parking lots, zoning issues where land that could be built for multifamily can't allow for it. There's a lot of things these cities can do. They're not. Plus all the regulatory hurdles actually operate in these cities. All of these things matter. Okay, so what's also kind of remarkable, you think about this next construction cycle and where everybody's kind of thinking, where am I going to build? Even with all the current challenges and higher supplied cities like Phoenix, most developers and the investors who back them, they're still going to favor these markets because they'd rather take on supply risk than regulatory risk. I say this all the time. Supply risk is temporary and it's predictable regulatory risk. It's usually unpredictable and it's permanent. Okay, so that's going to drive where capital goes to build more housing. And our third and final headline comes from Zillow. It says, dethroned why Hartford claims the crown as 2026 hottest market over Buffalo. All right, so I saw this article from Zillow and just as we were seeing all these articles by institutional investors, impact on home prices. So I thought the timing of was gold. Because obviously, as I'm sure most of you know, neither Hartford or Buffalo are cities of institutional investment interest. There's very, very few institutional investors, neither one of them. And yet they lead in home price appreciation. Why? Because it's all about supply and demand. And while neither one of those cities has seen a ton of demand or population growth, they've also not built a lot of housing for decades. And so with an aging housing stock and little new supply, even modestly positive demand is going to put upward pressure on prices. All right, let's get back to today's rental housing trivia question. The question is, what is the net change in the number of US single family home rentals between 2016 and 2023? Was it up 1.5 million, up 500,000 flat, or down 1.5 million? And the correct answer is. You would have got this if you were listening earlier in the episode. We lost 1.5 million single family rentals between 2016-2023 as homeowners took four rent homes and made them owner occupied homes with some investors selling out. All right, next up, it's time for today's interview. It's going to be a good one. We are sponsored by funnel, the AI and CRM software trusted by four of the six major REITs and many more leading operators like BH and Cortland. To learn how Funnel can help your property centralize operations and automate everyday tasks, visit funnelleleasing.com all right, our guest today is professor of Real Estate at Broke College in New York City. Last year he was a PhD student at NYU, where he wrote a paper titled the Impact of Institutional Investors on Homeownership and Neighborhood Access. I'm sure he had no idea how timely that paper would be. Just a few short months later, Josh's paper has withstood the rigors of peer review. And just this month, the American Real Estate and Urban Economics association awarded Josh as the co winner of its distinguished Hoyt Dissertation Award. A huge honor. And so it's also a huge honor for me to welcome in Josh Kovin to the program. Talk about three key findings from his research on the impact of institutional investors in single family housing. All right, welcome to the interview portion of today's podcast. And I have the honor of being joined today by someone whose research is suddenly very timely on the institutional investment in Sting, Fanley Reynolds. Professor Josh Kovan. So, Josh, thank you so much for being here today.
- [44:51]
B
Jay, thanks for having me. I've listened to a number of the podcast episodes and I always find them very interesting. So happy to be here.
- [44:58]
A
Well, I appreciate it. So, Josh, before we get into the. The meat and potatoes, tell us a little about your background and how you got into studying this topic.
- [45:04]
B
Yeah, so I'm an assistant professor of real estate at Baruch College Zicklin School of Business, which is a CUNY in New York City. And I started researching this in my PhD at NYU. I got a PhD in Finance. I graduated last year. And I've always been very interested in cities and real estate. And as I was learning economics at school, I was reading articles about these institutional investors, and I thought it would be great to figure out what exactly is going on.
- [45:32]
A
Yeah, that's how great research starts. Just like, you're just curious about something. Right?
- [45:36]
B
Right, Absolutely.
- [45:38]
A
So, Josh, I have to ask this question. So I'm always a little bit amused and disappointed sometimes when you share research, like what you have, or pick a field, it could be medicine, it could be housing, could be business. There's. There's a, there's a portion of the population that immediately says, well, this is tainted by corporate funding or whatever. So can you just myth bust for this for us and explain to us, you know, how you ensure or the process of how this is not somehow tainted?
- [46:09]
B
Yeah. So, I mean, econ finance research, like, you know, you get your funding from your department, your department pays you. If you have any outside funding, you have to declare it. And most people just, you know, use their own research budget and their own salary to do research. Like, we don't conduct large experiments, we purchase some Data and we try to answer questions and many topics will be interesting no matter what the result finds as well, especially this one. If you find that institutional investors are really bad, that's interesting. If you find they're not that bad, it's interesting as well. I would say additionally, if you were known within the field to be a corporate shill, you would be looked upon poorly by your peers as well. So that would be another mechanism to enforce neutrality.
- [46:55]
A
Yeah, and I'm sure just trying to get professor jobs will be harder too, if you're just a shill for somebody, Right?
- [47:01]
B
Absolutely.
- [47:02]
A
So there's I think three key summaries and I wish everybody listening would go through and actually read your paper. I'm assuming most just want to know the key takeaways, so let's hit some of those and I want to read one of them. So I'm going to read your words back to you. Obviously, it's for the benefit of our audience. You wrote, I find that institutional investors increase the quantity of rentals and lower rents on net because their ability to operate large portfolios at scale outweighs the incentive to use market power to decrease the rental supply. So I'm reading that again wrong. Institutions contributed to lower rents, but for institutions with scale, I think a lot of people outside the industry might not fully appreciate is that rent reduction was more than offset by potential or maybe real operational efficiencies of scale, which lowered their cost, therefore made it more profitable. Am I summarizing that right?
- [47:51]
B
Yes, I would say so. On average, they're able to do a number of things more efficiently than small landlords. And this allows them to purchase more homes. This makes it profitable for them to enter the market and maintain these homes. And because they're on average more efficient than small landlords, their entry increases the rental supply, which lowers rents and increases the number of rentals.
- [48:13]
A
Yeah, that's super interesting. And you know, I think what, again, maybe something that people don't fully appreciate is that if you have real scale and like everybody, every time people see the number of like, hey, institutions only have 2 or 3% of homes, they would say, well, look at Atlanta, I'm sorry, rental homes, not all homes. And I think people miss on this and your research really points us out is, I'm going to give an example that I like to share. If, if you have a company that owns, let's say, a thousand houses, if you have that scale, you can now have full time maintenance teams. And so when we have a resident move out, that team is probably gonna be able to fix up that unit and get it back in the market faster, thereby reducing what we call in the industry vacancy loss.
- [48:52]
B
Right.
- [48:52]
A
Which means the units sit vacant less amount fewer days, which means you're getting revenue faster and you're making more money, even if the rents didn't increase at all than somebody who couldn't turn it as fast.
- [49:04]
B
No, absolutely. Profit is the revenue minus cost. And you can shrink the cost side and be profitable and still have lower rents. You know, some interesting economies of scale that I seem to find are insurance cost appears to be much lower for these large landlords. And I talked to some operators and they said that this was due to bargaining with insurers for a bulk discount. And another seemed to be property management discounts. They own their own property management companies rather than hiring someone for 10% of rent.
- [49:34]
A
Yeah, that's a great point. Yeah, I'm sure if somebody who has one rental home is good luck bargaining with the insurance companies.
- [49:40]
B
Right, right, right, exactly.
- [49:43]
A
Another big topic you wrote about, we'll call kind of key conclusion number two is the impact on home prices and homeownership. So again, I'm going to read your paper back to you, which it feels a little weird reading back to you, but for the benefit of our audience. He wrote, institutional investors decrease the quantity of homes available for homeownership and raise prices. However, the homeownership impact is one fifth of what it would be if there were no supply response. And the price impact is far below the observed association between institutional investor purchases and actual price increases. Okay, so for us lay people, explain what you mean here is that yes, there's some impact on home prices and maybe not as much as people think.
- [50:23]
B
Right. There is impact on home prices only in the areas where they're present and not as much as people would think it is economically meaningful, but it's far below the observed price increases we've seen in these regions while these investors have been there. And on the homeownership side, the intuition might be, if you, if you are just starting to think about it, that if these investors own a home, that's one less home for a homeowner. But I estimate it's actually around a fifth. It's actually around 0.22 homes fewer for a homeowner because they buy some from small landlords and they crowd out small landlords in equilibrium and also because they do increase the price some, some amount, builders respond and build more homes. So both impacts, like the homeownership impact, is substantially smaller than you would expect if you didn't consider small landlords and construction. And the price impact is in their most concentrated regions. 20% of the observed price impact from 2012 to 2019.
- [51:26]
A
So I'm glad you brought up that period of time because one of the things that I find interesting is that when the impact on home prices, and this is my assumption is a lot of that probably came in the 2010s when individual home buyers were largely sidelined, especially the first half of the decade, you had investors of all types buying homes in reo, sometimes on courthouse steps. And back then, it's funny how the tone changes. Back then it was viewed as investors helping stabilize the market, protect homeowner equity. Is it, is it fair to say most of the impact on prices was really in that decade, in that time as a consequence of the gfc, and it's been less since then as most institution has largely kind of pulled back from buying homes one off?
- [52:08]
B
For the most part, yes. Although the surge in 2022 would also have had some impact as well.
- [52:14]
A
It would.
- [52:14]
B
It would only be a price impact while they're buying. If they're making homes nicer, that would also have a price impact. But that's not necessarily a bad thing.
- [52:23]
A
Right. So they're buying homes that are in disrepair. They're able to repair those when probably homes that an average home buyer couldn't finance or have to put a lot of cash out. Exactly. So you're saying those repairs bring up the value that way?
- [52:37]
B
It's possible. That would certainly do it. But my paper, my goal is just to analyze what does their increased demand do to house prices if they didn't make the houses better at all. So we sort of try to look at that negative impact for households.
- [52:51]
A
Okay. Was that impact different in that brief period after Covid than it was in the 2000 and tens? Did you get into that kind of.
- [52:58]
B
That's not something I get into.
- [53:00]
A
Okay, interesting. And then the other thing I was asking about, it relates to supply. You know, the perception is that if these homes aren't being bought by institutional investors, they would go to a homeowner. And most recently, I think the share John Burns data shows that the share of homes being bought by institutions something like 0.5%. But is it fair to say that if the institutions were not in there, wouldn't some of those homes just get bought by smaller investors?
- [53:24]
B
Yeah, absolutely. I do see that there's a lot of substitution between large investors and small investors. And I do a simulation in my paper where I have large landlords be removed from the market in 2019 and then homeowners and small landlords have to clear the market. They have to pick up these homes. And I find that more than half of these homes would go to small landlords, scoop them up when prices drop and rents increase.
- [53:49]
A
Interesting.
- [53:50]
B
Yeah. So this doesn't even consider the possibility that institutional investors have potentially optimized these homes for rentals while they've owned them.
- [53:59]
A
Yeah. So is that just because the, is it because it's the type of homes that would an investor be more likely to buy than a home buyer? Or do you have any kind of. I guess what goes into the assumption that, that a half of them, more than half, would have been put by a different type of investor as opposed to a home buyer.
- [54:16]
B
Right. It's that the small landlords are in the area so they're, they're exposed to this shock of large landlords leaving and that large landlords leaving lowers prices and raises rents, which makes it very attractive for someone to come in there and own a home and operate it as a rental.
- [54:32]
A
Yeah. And what have you seen more recently? You mentioned the post Covid spike these last few years. You know, certainly we're seeing less institutional activity in buying one off homes. Is that, I mean what does your research show from as you get into that and like these, let's call it 23, 24, 25.
- [54:50]
B
Right. So my paper doesn't study the new trends. I would love to study those in a new paper. But it certainly appears that the institutions are now building more than they're buying. So this is a much more relevant channel and this would have different trade offs. It would be less likely that they lower homeownership if they're buying directly from a builder. And they could have a lot of the positive rent impacts without having as many of the. Of the homeownership impacts. And there are also reports that they have synergies with builders as well. So it's very interesting. My paper doesn't get into it, but it seems like the trend has shifted.
- [55:22]
A
Yeah, I guess it's obviously become a very timely topic. I think it'd be interesting for someone to study is, you know, the, the home builders say that, that pre sales to SFR companies allows them to build a total number more total homes. There's cynics out there in very powerful positions who say that it's, it's just, it's a, it's a zero sum game and more I'm just swinging to the rentals so It'd be curious to see if someone can tackle that topic once and for all for us. Right.
- [55:47]
B
I would expect there's some non zero synergy that increases the total. Just because they don't have to make idiosyncratic modifications, they don't have to deal with so many people to sell 100 homes. They could deal with one person. I would be surprised if there were zero synergies.
- [56:00]
A
Yeah. And one of the things home builders will say is that, you know, it's cash up front that allows them to fund a bigger overall land site. And then the synergies also of like when you buy sell to a rental company, they don't. They're not customizing the home. They want them all the same thing. They want the same appliances and finish out so they can repair those things with the same materials.
- [56:18]
B
Exactly.
- [56:20]
A
One more key finding I want to share and this one I think is another one that's really misunderstood throughout society. And that's about the impact of sfr, probably of all types, you tell me, not on upward mobility of lower and moderate income households. So you wrote, I find that renters from regions with lower median incomes, worse school test scores and lower historic economic mobility move into institutional investor rentals. And so, you know, Josh, one of the things I'll hear a lot online from people is that, hey, people who the institutions are buying homes otherwise that have been bought by cbl, these people because they can't buy having to rent the same house. But is it fair like your research? I read it to say that people who are moving in these homes are probably people who wouldn't otherwise be able to afford to buy them and live in these neighborhoods if not for sfr.
- [57:12]
B
You know, there's some other research that points to that that says that these institutional investors, the renters in them, have lower incomes than homeowners. My research really just looks at where they come from and compares that to other people who move into the same neighborhood. So I have location history data. I can see the last 10 addresses of a number of anonymized people and I can tie that to the exact properties institutional investors own. Wow. So I can see for this property, where did the person come from and what are the neighborhood characteristics. And I can compare that to other people who move into the same census tract, which is a very small geography. And I do see that people who move into these institutional investor homes tend to come from areas with lower median household income, worse historic economic mobility, worse middle school math test scores.
- [58:03]
A
Wow, that's interesting. So just I don't know. If you have this in front of you, how big is that gap between home buyers and renters in the same neighborhood? Is it a sizable.
- [58:13]
B
I don't have the exact numbers in front of me, but it, you know, when just comparing the means, it is sizable.
- [58:21]
A
Yeah. Interesting. And then I don't know if you saw the, I think it was last year there was a paper from Virginia Tech that came out talking about the upward mobility associated with a family that's moving into these neighborhoods and accessing better schools. And so, you know, it seems like there could be a broader benefit to, you know, moving into a better neighborhood. Not only are those neighborhoods more diversified, but, you know, there's going to be kids who are accessing better schools and hopefully in a better position for the future as a result.
- [58:49]
B
Yeah. Certainly the fact that some neighborhoods you have to own in order to live there, that significantly constrains where people can, can go to school, where they can work. It's, there are a lot of second order knock on effects that are very interesting and important when people can choose to either rent or own in the neighborhood rather than have to own.
- [59:09]
A
Absolutely. Josh, one last question before I let you go. When you first started this project, and I love how it just started, you're just curious about something you read in and that's the best way any research starts, whether it's with PhD paper or just somebody like me has come up with an idea and looking into it. What did you find that maybe surprised you or what do you think you would find versus what you actually found if anything jumps out?
- [59:33]
B
Yeah, I was originally interested in this project because of what I was reading on the news and what I was studying in class. And I wasn't really sure how to think about market power in real estate because real estate is different economic primitives than, than other markets like consumer goods. And I would have probably expected that the concentration would lead to an increase in rents, but I find that overall these efficiencies in operating are more important and that market power and single family rentals at least does not appear to be a situation where companies are lowering occupancy to raise rents. So that was surprising and interesting to me.
- [60:10]
A
Yep. Well, I'm glad you point that out because there's there's a, you know, as you know, a big conspiracy out there that somehow landlords make money from vacant units, which, I don't know, somebody figures out how to make money for an empty unit. I'd love to find out, but.
- [60:21]
B
Right. It just doesn't make sense with too high property tax and and and and debt it there's just huge holding cost to vacant units, especially in single family rentals where you could easily sell that vacant unit. If you find that you have a ton of vacancies, you can sell it to both landlords and homeowners. And this is something that's easier in single family than multifamily to do.
- [60:45]
A
Absolutely. Well, Josh, thank you for your research and for your time. You know, in times like this it's great having, you know, real data and research. So thank you for your work and wish you the best of luck going forward.
- [60:57]
B
Thanks, Jay. Thanks for having me on.
- [61:19]
A
And that's wrapping Episode number 6767 of the rent Roll. Big thank you to Josh Coven for being our guest today. Thank you to jpi, Madera, Mason, Joseph Landing Authentic and Funnel for sponsoring today's episode and thank you to all of you for spending part of your week with us. We'll see you next time. Six, seven.