LISC President Denise Scott takes a look at what it will take to slow the loss of affordable housing to predatory investors that are destabilizing local markets, exacerbating inequities and damaging communities.
In today’s housing market—nearly everywhere across the country—it is hard to find rental or for-sale housing that is affordable to working families. The price of homes has jumped by more than 20 percent since 2021, and rents have soared in many areas as well. When combined with fast-rising interest rates, and on top of the nation’s existing shortage of affordable homes, the market has pushed decent housing beyond the means of millions of people—especially those earning low-to-moderate incomes and households of color.
But that’s not the whole story. So, let’s be clear about the rest of it: it is absolutely predatory.
Private equity firms and foreign investors have been taking thousands of what might otherwise be affordable for-sale homes off the market, converting them to higher cost rental units, and walking away if and when those portfolios become too costly to operate.
They are taking much the same approach to affordable rental properties, especially naturally occurring affordable housing (NOAH) with no federal requirements for affordability. Investors buy distressed properties, jack up rents to generate quick profits, push out tenants who can’t afford the hikes, ignore maintenance issues, and hide behind limited liability corporations (LLCs) when the code violations pile up.
In other words, rather than investing to develop and preserve quality housing and strong communities, they are destabilizing both for-sale and rental markets, exacerbating race and class inequities, and damaging the long-term prospects of cities and towns across the country.
Speculation isn’t new, of course (read more in Gambling with Homes or Investing in Communities, a LISC research report on New York’s experience). Black and Brown communities, in particular, have long been the target of predatory investors. But the danger as of late has been escalating. Last year, investors purchased 24 percent of all for-sale residential properties—a massive jump from the 15-16 percent that had been the norm for the prior decade. Think about the impact of absentee owners at that scale and the loss of quality housing that it signals.
As a country, without question, we need to build more affordable housing. But our communities also need strong housing preservation strategies in place to respond to predatory threats. In Cincinnati, for example, the port authority stepped up at the end of last year to acquire 194 units of distressed single-family housing from a failing out-of-town landlord—a firm that had swept in following the last foreclosure crisis to purchase the properties at a steep discount.
Thankfully, the city recognized the risk, and the port authority had the financial capacity to act quickly. It reached out to community groups and to LISC to figure out how to stabilize the properties (some vacant, many occupied by renters), as well as to plan pathways to homeownership in the future. Importantly, the transaction connected directly to the city’s long-term public-private strategy to preserve and develop quality affordable housing.
Unfortunately, by the time local officials recognize what’s happening, it may be too late to intervene in the way that Cincinnati did, even if resources are available. That’s why preservation strategies should not only focus on protecting assets for new buyers, but also on helping existing families stay in their homes. Home repair financing programs, for example, can help owners fix a leaky basement or replace a failing roof, so they are less likely to feel like they have to sell, and speculators are less likely to gain a foothold.
We’ve certainly seen that benefit in Detroit, where LISC has worked with the city and funding partners to help 600 homeowners finance repairs through the 0% home repair program. It offers 10-year, interest-free loans to owners with modest incomes, even if their outstanding mortgage exceeds the current value of the home. They can use it to remove health hazards like lead, upgrade electrical systems or replace an aging furnace—all projects that might otherwise be cost-prohibitive.
In fact, LISC has leveraged that program to ease the pressure of municipal liens as well. Liens are a critical but often overlooked threat to property owners, who may not be able to afford the massive tax levied to upgrade failed infrastructure, like water systems. Without relief, who do you think is ready to swoop in to buy their properties at rock-bottom prices? If we can help families pay off those liens and keep their homes, we can also protect their communities from predatory investors.
I would add heirs’ properties to that protection list as well. The term refers to family land that has been continuously occupied by descendants but without clear title to the property, generally because of historical discrimination. LISC Jacksonville is leading the Family Wealth Creation (FWC) initiative to address 30,000 heirs properties in Duval County, Fla., which right now represent $5 billion in locked family wealth. FWC is educating owners about their rights, addressing inequitable assessments and appraisals, providing legal help navigate probate and gain title, and funding home repairs to protect these vital family assets. The work not only benefits the owners but supports stable housing markets and local economic growth as well.
All of that has proven to be enormously beneficial. But are there more comprehensive ways to level the playing field? Absolutely.
- Enact regulatory changes to make LLCs more transparent, so residents and local officials know who owns what. Limited corporate veil piercing for landlords would also make it more difficult for bad actors to hide from code violations and other complaints.
- Fuel acquisition funds that bring distressed rental housing into community and nonprofit ownership and promote its permanent affordability. Policies like those found in the model Tenant Opportunity to Purchase Act (TOPA) in Washington, D.C., and Community Opportunity to Purchase Act (COPA), proposed in New York City, are promising preservation tools.
- Regulate foreclosure sales to avoid community disinvestment cycles (following the lead of land banks). Municipalities should screen investors/acquisition proposals for past performance and require them to meet minimum standards.
- Use taxation to discourage speculative sales and debt. States can impose vacancy and warehousing taxes, flip taxes, and out-of-state transaction taxes to help discourage predatory behavior and capture at least some public value from investor ownership.
From one economic cycle to the next, we know who is hurt by predatory investment practices—people with low-incomes, communities of color, and cities and towns that have long grappled with significant housing shortages. If we are too blind to the risk or too slow to act, we should expect more of the same. This can’t wait.
Upcoming Event
For more discussion on these important issues, please join us on Wednesday, November 16th, at 3 p.m. ET for Tenant Power, Private Equity, and the Eviction Crisis, a webinar focused on critical questions of housing.
ABOUT THE AUTHOR
Denise Scott, President
With more than three decades of experience in community development, Denise leads LISC’s investment in 38 local offices in cities and rural communities across 49 states with a firm commitment to ensuring local leaders have the platform and capacity to drive strategies for equitable community change. She is responsible for providing vision and setting the strategic direction for local offices and national programs and leading implementation of enterprise priorities like Project 10X. Denise previously served as LISC’s Executive Vice President for seven years. In this role, she elevated the field agenda and refined a service delivery system for national resources, investments and technical assistance to maximize LISC’s impact.
@LISCDeniseScott