Renita Barbee, 52, was still grieving the death of her mother last fall when she received another shock. Her landlord, the Wall Street rental behemoth Invitation Homes, was raising her rent to $3,000 a month, an increase of more than $800 all at once. Barbee had shared the three-bedroom Los Angeles rental home with her mother, husband, and daughter. But her husband wasn’t working after a recent stroke, and without her mother’s Social Security payments to help cover the bills, there was no way that Barbee’s family could afford to stay put on just her salary as a city dispatcher.
Frantic calls and e-mails to the company went unreturned. Barbee says she was accustomed to getting an operator when she called Invitation Homes, one of several large investors that seized an opportunity to profit in the aftermath of the housing crash. Backed by private equity cash, these investors took advantage of fire-sale prices to scoop up hundreds of thousands of foreclosed homes nationwide and convert them into rental properties. The new investors-turned-landlords often looked little like the mom-and-pop operators who have typically managed single-family rentals, tenants found.
“There was no opportunity to just go talk to someone and negotiate,” Barbee tells The Intercept.
She’s one of hundreds of thousands of Americans who—whether they know it or not—are now renting from Wall Street. A new report by three housing and consumer rights groups claims that her experience is a typical one, and that Wall Street’s new rental empire is characterized by aggressive rent hikes, fee gouging, and high rates of eviction. These practices, according to the report, are propping up a new asset class known as “single-family rental securities,” akin to mortgage securities but backed instead by the rent checks of tenants like Barbee.
Since their debut in 2013, rent-backed securities have ballooned into a nearly $20 billion market that won a first-of-its-kind taxpayer backing from Fannie Mae in January 2017. Last month, Freddie Mac announced its own single-family rental financing deal. These developments augur continued growth of the controversial industry, and many affordable housing and consumer advocates are calling for additional regulations.
“This important report highlights the way Wall Street landlords have driven up rental prices and provided terrible living conditions—particularly in low-income and minority communities,” Sen. Elizabeth Warren, D-Mass., told The Intercept. “We need to do much more to provide clean, safe, and affordable housing for working families—and we can start by taking control away from Wall Street and returning it our communities.”
Wall Street’s turn as landlord coincides with historic lows of U.S. homeownership. In 2011, analysts at Morgan Stanley proclaimed that the nation was undergoing a transition from an “ownership society” to a “rentership society.”
This transition has occurred, in large part, thanks to Wall Street’s own efforts. The addition of 7 million single-family rental homes since 2005 has “almost a one-to-one relationship with the number of families who lost their homes to foreclosure,” says Julia Gordon, executive vice president of the National Community Stabilization Trust, or NCST.
Early on, observers like Gordon raised concerns that Wall Street’s “rentership society” could crowd out would-be homebuyers and put tenants and recovering neighborhoods at risk.
The report released this week by Americans for Financial Reform, ACCE Institute, and Public Advocates contends that these fears have come to pass.
Drawing on investor communications and more than 100 tenant interviews in Los Angeles County, the report’s authors examined the business practices of nine Wall Street firms that now manage more than 200,000 single-family homes in 13 states. This number remains a fraction of the total rental inventory in the United States. But the report suggests that by concentrating their activities in a small number of geographic areas—often those with few tenant protections—single-family landlords have been able to exert outsized influence.
Invitation Homes, which merged with Starwood Waypoint Homes in November 2017 to create the nation’s largest single-family landlord, did not respond to a list of questions from The Intercept. But the company said in a statement that its rents are “dramatically lower on a per square foot basis than apartments in our markets.”
“Invitation Homes has invested more than $2 billion, an average of approximately $22,000 per house, in renovations to its properties—many of which were previously sitting vacant and dragging down property values for surrounding families,” said the company. “Those investments not only benefit residents by providing high-quality homes near good schools and good jobs, but also played a critical role in stabilizing local housing markets, and spurring local economic growth and job creation.”
Several previous studies have provided evidence that Wall Street landlords are putting pressure on local housing markets. In Sacramento County, Calif., local news station KCRA reported last year that Invitation Homes is the largest private landlord, behind only the city itself. Zillow rental data shows that in 2014, rent in single-family homes in Sacramento was increasing up to 50 percent faster than in multifamily apartments, before the latter caught up. Now, Sacramento is undergoing an affordable housing crunch, which local housing advocates believe Invitation Homes may have exacerbated by charging above-market rents, allowing other landlords to follow suit.
Meanwhile, in December 2016, the Federal Reserve Bank of Atlanta published the first comprehensive study of eviction rates among the new single-family landlords. In Fulton County, Georgia, the study concluded, large firms with Wall Street backing were up to 19 percent more likely to issue eviction notices than smaller firms. In 2015, Starwood Waypoint Homes (then named Colony Starwood) filed for eviction against more than one third of its renters in the county.
“My hope was that these private equity firms would provide a new kind of rental housing…