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Idea of the Day: What Are the Policy Implications of an Investor-Led Housing Recovery?

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Across the country, investors are taking advantage of the nation’s foreclosure crisis to purchase homes at bargain prices, often beating out potential homeowners who remain sidelined. In July, cash-on-hand investors bought about 55 percent of the homes sold in Las Vegas and numerous properties in other major metropolitan areas such as Miami, Phoenix, and Prince George’s County, Maryland, a suburb of Washington, D.C.

Investors can play a key role in a housing recovery. By absorbing excess inventory, they establish a floor for home prices and jumpstart appreciation. Responsible investors can also offer quality, affordable rental opportunities to families who may be locked out of homeownership due to foreclosure or lost wealth from the recession.

But while they can support communities, irresponsible investors can also destroy them by allowing properties to sit empty, declining to bring rental properties up to code, and neglecting tenants’ needs in instances where the home is occupied. Additionally, investors that buy large quantities of properties in a single area can cause prices to overheat and increase market volatility. Conversely, if institutional investors following a set business plan sell numerous properties in the same time frame, prices in those neighborhoods could decline again.

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This is part of a regular column: Idea of the Day

For more from the same column, click here