In 2010, at the height of the foreclosure crisis, the federal government watched nervously as hundreds of thousands of families lost their homes. Empty houses blighted neighborhoods, their shades drawn, their yards overgrown. Without some kind of intervention, federal officials worried, the housing market would continue in its free fall, prices would keep dropping for existing homeowners, and the economic recovery, already tenuous, would be imperiled.
But who would fill these empty homes? Few Americans were in a buying mood, and for those who were, mortgages were harder to come by than they had been before the crash. So the government incentivized Wall Street to step in. In early 2012, it launched a pilot program that allowed private investors to easily purchase foreclosed homes by the hundreds from the government agency Fannie Mae. These new owners would then rent out the homes, creating more housing in areas heavily hit by foreclosures.
“There was this glut of foreclosed properties in parts of the country, and inadequate demand from the traditional home-buying population and even traditional investors,” Meg Burns, who was at the time the senior associate director of the Office of Housing and Regulatory Policy, told me. “We were trying to influence demand.”
It worked. Between 2011 and 2017, some of the world’s largest private-equity groups and hedge funds, as well as other large investors, spent a combined $36 billion on more than 200,000 homes in ailing markets across the country. In one Atlanta zip code, they bought almost 90 percent of the 7,500 homes sold between January 2011 and June 2012; today, institutional investors own at least one in five single-family rentals in some parts of the metro area, according to Dan Immergluck, a professor at the Urban Studies Institute at Georgia State University. Some of the nation’s hardest-hit housing markets were finally stabilized.
The investors argued that they could be good landlords—better, in fact, than cash-strapped small-timers. According to Diane Tomb, the executive director of the National Rental Home Council, a trade group established in 2014, single-family rental companies “professionalized” a sector traditionally run by mom-and-pop landlords, bringing with them 24/7 responses to maintenance requests and a deep pool of capital they can spend on homes.
They also projected they could make money, which no one had done on a large scale in the home-rental business. “We wanted to rescue these neighborhoods and create a long-term, permanent income stream for our shareholders,” says Frederick Tuomi, who was until recently the president of Invitation Homes, which is now the largest single-family rental company in the nation. (Tuomi is currently on a temporary leave of absence to care for a family member.)
Wall Street analysts and potential shareholders, however, were skeptical. Maintaining thousands of homes of different sizes, ages, and conditions across an entire metro area seemed like a logistical nightmare. “How can you operate and create scale in that situation?” Sam Zell, the billionaire real-estate investor, told CNBC in 2013. “I don’t know how anybody can monitor thousands of houses.” When the new rental companies started offering shares to investors on the public market in late 2012, the response was tepid.
But housing trends were on the side of the investors: America was becoming a renter nation. According to census data, between 2007 and 2017, the United States added less than 1 million households in owner-occupied homes, but 6.5 million in renter-occupied homes. Many families wanted to live in a spacious house in a good school district, but could no longer afford to do so as owners. The homeownership rate bottomed out at 62.9 percent in 2016, down from a high of 69 percent in 2005.
Of course, the trends that favored these new landlords were largely produced by a financial crisis that Wall Street had itself abetted. That some of the same investment firms that had played a part in the housing crisis were now poised to profit from it made for a dismal irony. But if the new companies could deliver on their promises of making home rentals easy, affordable, and worry-free, perhaps everyone could win: The companies could return a profit, the housing market could be shored up, and houses that had lain fallow after the crash could once again be happy homes.