Renters benefited from lower rents because institutional investors increased supply

Interesting summary by Jay Parson on LinkedIn regarding a paper on how Institutional landlords in the are not the big bad wolf. They end up lower rents overall.

Here are some key conclusions from Josh's research paper:

1) "Renters benefited from lower rents because institutional investors increased the rental supply by 0.58 homes for each home they purchased."

With some nicely worded mythbusting, Josh writes: "These findings show that economies of scale, not market power, are the driving mechanism behind institutional investor impact in the single family rental market."

In other words: Adding homes into the SFR market pushed rents LOWER than they'd otherwise be. But the investment can still be profitable because large investors with economies of scale reduce their costs, too.

2) While every home sold from an individual owner-occupant to an investor (of any size) removes inventory from the for-sale market, the impact is not as big as headlines lead you to believe.

Institutional investors buying homes "lowered homeownership by less than expected because of supply." Specifically, the impact "decreased homeownership by 0.23 homes for each home purchased. The impact is not 1:1 due to supply responses: builders build and small landlords sell homes. Not accounting for supply leads to incorrectly estimating the impact by 4x."

This is an important distinction that headlines and speechwriters often miss. You can't look at acquisitions alone. You have to look at net flows: acquisitions minus dispositions. Investors sold a lot -- particularly smaller "mom and pops," many of whom exited the SFR market over the last decade. (Additionally, Josh's paper goes into depth of correlation versus causation in regards to home price growth -- another simple yet common mistake in anti-rental analysis.)

Furthermore, I'd add (my own point) that during the big buying spree of the early 2010s, investors were often looked at rescuers for underwater homeowners needing an exit. By 2016, the trends reversed. Homeownership nationally (and in high-institutional markets like Atlanta) rebounded substantially between 2016 and 2023 as individual buyers outmuscled investors. So when we analyze the impact of investors, this is why you could conclude investors contributed to home price appreciation (and equity recovery) in the 2010s, but played minimal role in the COVID-era surge as Freddie Mac research has showed.

3) While some policymakers have proposed a) banning large investors from buying home and b) capping rents on "large corporations" at 5%, Josh's paper shows how this would inevitably backfire. "Both policies raise rents because they decrease the rental supply, showing that mistaking the correlation between investors and rent increases for causation leads to counterproductive policy," he writes.

https://joshuacoven.github.io/assets/JoshuaCovenJMP.pdf

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