Why Are Corporations Buying Homes? A Discussion on Blackrock, Zillow, iBuyers, and Others
An upsetting trend has emerged in the real estate market—and it’s only gotten worse.
The problem has been on our radar for quite some time, and it was even on our predictions for the 2022 US real estate market: The continued growth of institutional funds and their continued efforts to buy up residential real estate property.
How bad is it? Late last year, Bloomberg reported that these companies bought 18% of all homes sold in the United States! Think about that for a second: Between July 1 and September 30 of 2021, companies bought nearly a fifth of all homes that hit the market.
It’s a trend that has only continued into 2022, and it’s one of the many factors driving up home prices across the United States. In fact, we’ve even heard horror stories about companies who systematically outbid the competition—which is frequently families trying to become homeowners—until the competition backs off.
The problem has compounded to the point where we’re asked the same question over and over again: Why are corporations buying homes?
The answer, of course, comes down to profits.
Why Corporations Are Buying Homes
In short, corporations are buying homes because they stand to make a lot of money, first through the investment itself, and then by turning the home into an income property.
Let’s break it down further. A typical corporation can make money through real estate with three strategies:
They can get the equity of the property. A company with deep pockets can easily outbid families for homes on the market. The strategy was even highlighted in a New York Post article that described how one bidder (a corporate-backed buyer) consistently “went one dollar over every other bid until the other bidders conceded.” And once a company owns the home, it can then afford to sit on the property as the value of the home appreciates, earning the company additional equity—and buying power. This becomes a self-fulfilling prophecy: the more property a company owns, that company can purchase.
They can (and do) turn these properties into rentals. By renting the home out to families, these companies can create a new income stream. Done correctly, the monthly rent covers the cost of the mortgage (if one exists) while sending excess cash to the company coffers. And once the home generates a track record as a successful income property, the home’s value increases, earning the company even more equity.
Strength in numbers. For the last few years, headlines have popped up every few weeks about families being squeezed out of the market by aggressive, headstrong bidders. As we mentioned above, these bidders are often individuals or companies funded by large corporations focused on buying every property that hits the market within certain geographies. And as a corporation collects more property in a single neighborhood, it can exert more and more control over rent costs and sales prices, lining its pockets as deep as the free market allows.
It’s a terrifying reality for families, especially families who don’t currently own a home. Without existing equity or property ownership, buying an affordable home can become an extreme challenge, and it’s something that has only grown more difficult as property values have skyrocketed on the tail end of COVID-19 pandemic.
But what companies are actively buying up houses and making the market more challenging for families across the country?
Examples of Companies Buying Up Houses
Many of the companies buying up houses are household names. Although they may operate through a DBA or a subsidiary when it comes to buying a home around the corner from your house, you can often trace corporate purchases back to larger companies in the news or on the stock market.
BlackRock And Institutional Investors
BlackRock, the multinational investment management company, has received tons of flak for joining so many other “institutional investors”—large organizations gobbling up US homes.
But BlackRock insists it doesn’t engage in buying single-family homes.
Instead, the undo backlash against BlackRock has stemmed from an April 2021 Wall Street Journal article entitled “If You Sell A House These Days, The Buyer Might Be A Pension Fund.”
BlackRock’s name was mentioned in the article, and people jumped on top of it.
And although BlackRock might not be among those institutional investors, the frustration directed at these institutional investors is real.
People are understandably upset that large institutional funds are buying up as much property as possible—and it ultimately hurts families and individuals the most.
When they’re squeezed out of the real estate market, they’re at the mercy of the pricing set by these companies.
Zillow And iBuyers
Last year, Zillow (and many other “iBuyers,” otherwise known as “instant buyers”) bought as many properties as it could.
And Zillow bought a lot of properties. The reason Zillow owned so many homes was because the company offered to buy many houses online sight unseen. The objective was to eventually renovate and sell the homes for a profit, but the strategy ultimately backfired.
Late in 2021, Zillow announced it had lost $304 million dollars in the third quarter, and it completely shuttered its iBuying program.
But that hasn’t stopped other iBuyers from scooping up properties. As we explained in our What Is An iBuyer? article, the two biggest iBuyers (Offerpad and Opendoor) collectively bought nearly 18,000 homes in Q3 of 2021!
How We’re Fighting Back Against These Corporations
New Local Realty was founded to shift the power of the real estate market back into the hands of the people.
One way we do that is by practicing the ideals of New Localism, the idea that we can invest in our communities and improve housing without disenfranchising the people who already live there.
In other words, we aim to continue building up Pittsburgh without the threat of systematic gentrification.
Through a variety of strategies, including buying blighted properties and transforming them into beautiful affordable homes for families, we’re making homeownership more accessible for the people of Pittsburgh.
To learn more, contact us!
