RELEASE: The Implications of Single-Family Rental Bonds for Tenants and Housing Markets
Contact: Katie Peters
Washington, D.C. – A report released today by the Center for American Progress sheds light on the potential risks tenants and communities could face if Wall Street investment companies begin buying and renting single-family homes at a faster clip. The paper, authored by CAP housing expert Sarah Edelman, details how the emergence of mortgage-backed securities tied to single-family rentals is likely to fuel the growth of this industry and affect tenants, communities, and the housing market. In the report, Edelman recommends improving regulatory oversight, increasing transparency, and strengthening tenant protections to guard against any potential downsides to these new developments.
“Wall Street is coming back to the housing market—this time not to lend to homeowners, but to buy and securitize huge swaths of single-family rental homes. To protect our neighborhoods, housing, and financial markets, policymakers should closely monitor these new landlords and the single-family rental bonds they are selling,” said Sarah Edelman, Housing Policy Analyst at CAP. “For the good of our neighborhoods, housing, and financial markets alike, we must ensure these landlords are acting responsibly and that these bonds are safe.”
Over the past few years, institutional investors have bought hundreds of thousands of single-family homes across the nation at bargain prices and converted them into rental homes. In some parts of the country, especially those areas that experienced deep price declines during the 2007–2009 housing bust, these firms, along with smaller cash investors, have bought more than half of all homes for sale.
In October 2013, a Wall Street firm created the first triple-A-rated, mortgage-backed security supported by revenue from single-family rental properties, a development that may offer even lower-cost financing to institutional buyers than has been available through bank credit lines. This practice, known as securitization, will make it easier for Wall Street firms to buy and rent homes and could fuel the growth of a near $1 trillion single-family rental bond market, according to analysts.
In the report, Edelman explores some of the potential risks to communities and the housing market if investors do not properly manage the homes, if investors crowd out families hoping to buy a home, and if investors leave the housing market as quickly as they entered it. While these risks exist regardless of how investors finance their operations, cheaper financing through securitization may propel industry growth, heightening all of these concerns. Edelman also explores how the structure of the securitization itself could make it harder for tenants to communicate with the property owner, possibly push the cost of rent up, and trigger bulk sales of properties if the loan is not repaid.
As more families send their rent checks each month to faraway investors, it’s crucial to put in place policies to ensure that these properties are stable, secure places to live. State and local policymakers, federal regulators, and the industry itself should take proactive steps to protect families and the local housing markets in which they live. Recommendations detailed in the report include:
- The single-family rental industry should establish industry-wide standards.
- State and local lawmakers should ensure adequate protections for tenants and housing markets.
- Federal regulators should monitor institutional investors in single-family rental homes and securitization of these homes.
Read the report: When Wall Street Buys Main Street: The Implications for Tenants and Housing Markets of Single-Family Rental Securitization by Sarah Edelman, Julia Gordon and David Sanchez
- Fact Sheet: What happens when Wall Street Owns the Neighborhood? by David Sanchez and Sarah Edelman
- Report: Cash for Homes: Policy Implications of an Investor-Led Housing Recovery by Sarah Edelman
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