Saving neighborhoods from absentee landlords

A new proposal in Congress would limit tax breaks for investor-owned properties. Will it work?

Credit: David Kidd

This week I joined a panel on Wisconsin Public Radio to discuss the affordable housing crisis and the recently proposed Stop Predatory Investing Act in Congress. 

You can listen to the full panel discussion by clicking here. To learn more about investor-owned properties and the impact on states and localities, read on.

The rise of investor-owned properties

In the years after the Great Recession, vacant single-family homes in many cities were snatched up by investors who flipped them to sell or rented them out—today at a staggering profit. 

The surge of outside and corporate investors in single family rental properties is one of the many factors contributing to the current housing shortage. A full one-quarter of homes sold in 2021, were purchased by outside investors. Many believe that the presence of these investors — and private equity firms in particular — in the housing market has intensified the affordability crisis via higher rents, lower rates of individual homeownership and less affordable neighborhoods.

“The single family home as a rental asset class … was in many ways a result of the 2008 crisis,” R.J. McGrail, director of the Accelerating Community Investment project at the Lincoln Institute of Land Policy, recently told me. “It created a rare opportunity of significant supply to make money either building [housing] portfolios from the ground up or in acquiring them.”

Not only is the rise in investor-owned housing jacking up rents, it’s also draining certain neighborhoods of homeowners and the personal commitment to a place that usually comes along with homeownership. For example, two major investors own more than 12,000 homes in just three Ohio markets. In 2021 in Cleveland, Ohio a whopping 70% of homes in a single zip code were all purchased by investors. 

What is the Stop Predatory Investing Act? 

Legislation introduced in Congress last month targets this trend by limiting business tax breaks for private equity and large investors and therefore increasing their taxable income. It does so by prohibiting an investor who acquires 50 or more single-family rental homes from deducting interest or depreciation on those properties.

• It only applies to dwellings with no more than four units.

• Nonprofits such as community development organizations, land banks, community land trusts, resident co-ops and public housing agency subsidiaries are exempt.

• Support affordable rental housing and the construction of new housing supply by allowing owners to continue to take deductions on properties that are financed using Low-Income Housing Tax Credits or that are newly constructed for rental.

“In too many communities in Ohio, big investors funded by Wall Street buy up homes that could have gone to first-time homebuyers, then jack up rent, neglect repairs, and threaten families with eviction,” U.S. Senator Sherrod Brown (D-OH), a co-sponsor of the act, said in a news release. “Our bill will help prevent corporate landlords from driving up local housing prices, and put power back in the hands of working families, who need a safe, affordable place to live and raise their children.”

OK, but will it actually work?