Rental housing is an essential component of the Massachusetts housing stock, and for decades rental housing has provided most of the opportunities for low- and moderate-income households to find a home they can afford. Just as there is a great variety of rental housing across the state and within communities, there is great variety in the owners of the rental housing stock (also known as landlords). Some landlords are individuals or families who own a two-family or three-decker, live in one of the units, and rent out the other(s). This ‘resident landlord’ model can be a pathway to housing stability and wealth creation for households who have the means to acquire a multifamily home and the capacity to be a landlord. They can earn rent while building equity, and the additional units may also provide a home for family members.
Other landlords own one or two properties and rent them out but live elsewhere. Meanwhile, many rental properties are owned by corporate entities and investors who own dozens, hundreds, or even thousands of rental units. Often, these properties are held by trusts or limited liability corporations so that it is difficult to assess what properties are owned by the same entity or group of entities. It matters who owns rental units because there is evidence that larger profit-driven investors are more likely to maximize rents, take quick action to evict renters who fall behind, or make quick capital investments and ‘flip’ properties for short term capital gains.
While it is difficult to precisely estimate how many rental units are owned by individuals or small landlords versus large investors, we do know that investor ownership of multifamily housing has been changing. The Metropolitan Area Planning Council’s analysis of property transaction data in Metropolitan Boston found that 21% of transactions between 2004 – 2018 had an investor purchaser. (Investors are defined as limited liability corporations; entities that purchased more than three residential properties in five years; any purchaser of a building with four or more units; and any purchaser that acquired more than $3.5 million of residential properties over the study period.)
This analysis also shows that, while investor activity represented 16% of sales in 2004, that number rose to 23% in 2018, with significantly higher investment rates in the small multifamily homes that used to be a pathway to wealth building for middle income households. Over 30% of two-family homes and nearly 50% of three family homes sold in 2018 were purchased by investors. MAPC’s analysis also found that investors come to the table with a clear advantage: cash. Cash offers are more appealing to sellers than traditional mortgages, so much so that cash offers are often accepted even if they are not the highest bid, allowing buyers to purchase properties at a discount. More than half of investors who purchased condominiums during the study period did so in cash, with similarly high proportions for single-family (43%), two-families (45%), and three-family (39%) purchases.
MAPC found that 9% of residential buildings bought in Greater Boston between 2002 and 2022 were “flipped” within the next two years, with the highest flip rates among apartment buildings (12%) and three-family homes (11%). Large and institutional investors were the most likely to flip the homes they purchased, with nearly a quarter of single-family homes and a fifth of two-family homes purchased by large or institutional investors being flipped within two years, compared to rates of just 8 and 9% respectively for non-investor buyers. Flips have two important impacts on the region’s housing market. First, they take lower-priced houses off the market for potential owner-occupant buyers; the median purchase price for a home or building that will ultimately be re-sold within two years was $160,000 less in 2020 than it was for those not sold within two years. The price differential has been steadily climbing since 2014. In addition (and by intent), flippers resell properties for significantly more than the original purchase price, compared to non-investors. Since 2010, investors who flipped their single-family properties have seen re-sale prices a median of 55 to 85% higher than they originally paid for the properties; by comparison, non-investors who flip properties have seen re-sale prices at a median of only 12 to 25% higher in the same period. By acquiring lower cost properties quickly through cash offers, then converting them into a product that sells at a much higher price point, this process is eroding the stock of moderately priced homes.
Transaction data also show that investor activity is most likely to occur in higher density neighborhoods with low or modest home and rent prices. In some of these neighborhoods at the core of the Boston Region, investors comprised nearly one third of all purchases. This activity adds stress to already burdened communities where the cost burden and evictions are above average.
Investor purchases are not limited to urban areas, however. About 20% of sales in high-cost, primarily single-family neighborhoods are to investor purchasers, a rate that has been increasing over time. This activity has led to a decline in availability of modestly priced starter homes. In some of these wealthy communities, ten percent of sales are flipped within two years, often after a teardown/rebuild or substantial expansion of the property and corresponding increase in value. As a result, flips in these markets contribute to pushing these already “exclusive” neighborhoods farther out of reach for the average Massachusetts resident.
Research from other states has found that when large investors and corporate landlords acquire small multifamily developments, they often raise rents and may seek to evict households in order to renovate and re-list an upgraded unit. Other researchers have found this leads to displacement of preexisting residents, especially people of color.
The challenges with investor ownership are not limited to unrestricted, market-rate units. In Massachusetts, some long-time owners of deed-restricted units set rents for their tenants at a stable or income -based level rather than according to the rent standard which has increased considerably over time. As these developments are sold or re-syndicated, new owners have the legal authority to increase rents substantially, so long as they are still below the rent limit specified by the affordability restriction. As a result, residents of deed-restricted affordable housing could see unmanageable rent increases. Anecdotal information from residents indicates this may be a growing problem that should be assessed further.
Nationally the real estate industry has seen growth in single family rental market. Large corporate landlords are increasingly using algorithms to set rents and asking prices (RealPage), and all landlords now have access to online listings that provide a broad window into the market, allowing them to set their asking rents at the top of what they think the market will bear.