Report finds Phoenix is a testing ground for investor-owned and build-to-rent homes

A new report raises concerns about the number of single-family homes in the Valley that are owned by institutional investors.

The paper from the American Economic Liberties Project finds Phoenix is behind only Atlanta in terms of the number of properties that are owned by these groups. Estimates range from 33,000 to 72,000 single-family rental homes owned by institutional investors in the Valley.

The paper also finds Phoenix is the top market in the country for build-to-rent homes. As the name suggests, these are units that are built specifically to rent out to tenants.

This trend started in the late 2010s. But the report says these issues affect potential buyers as well as renters.

Laurel Kilgour is research manager at the American Economic Liberties Project and an author of this report. She joined The Show wo talk more about it.

Full conversation

MARK BRODIE: Laurel, when we’re talking about institutional investors, who exactly are we talking about?

LAUREL KILGOUR: Yeah, so largely private equity firms, um there are a bunch of other corporate configurations that you can use, but it’s basically like mass ownership of homes, usually backed by Wall Street capital.

MARK BRODIE: So homes being used as an asset, like you would like these institutions would see pretty much any other asset?

LAUREL KILGOUR: Yeah, as an asset, and this is a story where Phoenix has been used as a testing ground for Wall Street since just after the Great Financial Crisis. And actually, Phoenix was the very first testing ground that Wall Street used for this new asset model. So Phoenix, um, Invitation Homes started in 2012, and by the next year, 2013, it had launched the first securitization that was backed entirely by expected rental income from single-family homes.

MARK BRODIE: OK, so you mentioned that Phoenix has sort of been this this test case. Obviously, there’s a lot of factors that went into getting the city where it is now, but can you sort of give us the thumbnail version of how it is that that we got here?

LAUREL KILGOUR: Yeah, so housing is obviously a complicated market, there are a ton of factors, you know, one of the things that’s been uh you know one of the biggest factors has been the the Federal Reserve rate hikes, you know, zoning is another factor, but what I focus on in the paper is is the trend towards financialization um and some of the challenges in building homes. So we build 20% uh less homes across the country, the rate of construction is 20% lower now than it was in the 1990s.

And I, you know, go into some of the deeper history of that, we used to have totally different federal laws frameworks and and local laws around how we finance home building. So it was really that local money was kept locally to support a lot of, you know, home builders of many different sizes, and and over time, we sort of dismantled that framework and moved to a more financialized model where it’s very hard for small builders to get enough capital to build, and the larger builders don’t have the right incentives because they’re responding to Wall Street. They don’t have as much incentive to to build uh starter homes in particular.

So there’s this this is sort of the background condition of why uh single-family rentals came about, is that we’re we’re not building enough, and so these single-family landlords didn’t create this housing shortage problem, but they took advantage of it, and they’ve made it a bit worse by buying up single-family homes in a lot of places.

MARK BRODIE: What was the impact of the Great Recession and the foreclosure crisis that hit this area especially hard?

LAUREL KILGOUR: Yeah, so that that was a that was a huge impact. Um, I think it was 11% of homes in Maricopa County were foreclosed, you know, just after the 2008, you know, uh crash. Um, so that was, you know, a huge reason why uh that was a focus for Wall Street, you know, so Wall Street really in the past had not been involved in buying up single-family homes because it was just not efficient to buy up one here or there, whatever.

But when you had all of these homes available to purchase in bulk, and the administration, the Obama administration was actually encouraging uh Wall Street to buy up these foreclosed homes in bulk to to sort of prop up the market and and resolve things quickly. Um, and they made that choice instead of adjusting mortgages, helping people stay in their homes, or at least giving ordinary families, you know, sort of a a first opportunity to buy before Wall Street stepped in. Instead, they were really focused on, “Let’s just efficiently get this to Wall Street, get all of this, you know, bought up by someone.”

And Wall Street was interested in the Phoenix area in particular partly because there were a lot of a lot of foreclosed homes available. Also, because there were some other factors that just made it very attractive. So Arizona has a very low property tax rate, so that makes it very easy to just hang on to an asset, don’t have a lot of carrying costs, even if even if the houses stayed vacant for a while while you were trying to rent them out, you know that event, you know, eventually you’re, you know, it’s it’s going to be an appreciating area.

A lot of jobs coming into Phoenix, they knew there would be population growth, so they knew that the prices would recover, that that turned out well for them. Arizona, the sort of landlord-tenant laws in Arizona were also a factor. We have very fast evictions in Arizona, right, and you can get entire process done in under a month, so that was also very attractive to investors, that there was very little downside risk compared to other places in the country.

MARK BRODIE: So is the fact that so many homes here are still owned by investors nearly 20 years after the Great Recession started, is that sort of an unintended consequence of what you’re talking about with what the Obama administration was trying to do?

LAUREL KILGOUR: Yeah, absolutely.

MARK BRODIE: So why is this a problem? Like if I’m somebody who’s living in Maricopa County and I’m looking for a place to rent or even to buy, why does it matter if the property’s owned by an investor or by somebody who lives down the street?

LAUREL KILGOUR: Yeah, that’s a great question, and there has been some good academic research recently showing that there is a difference in institutional investors are much more aggressive about hiking rents uh more uh more and faster than mom-and-pop landlords. So that that’s true in a bunch of places. Um, they are also uh more eager to evict.

Um, another thing that has been less uh appreciated in the conversation is that these institutional investors are more aggressive about challenging the, you know, sort of property tax valuations of the houses, so they actually contribute less to the community, which is a harm that I think is less appreciated, so they’re paying less in taxes towards schools, roads, all of the things that that you need. So on the renter side, there’s also um, I think what’s also notable is that uh the FTC uh had a lawsuit against Invitation Homes that they settled for $48 million in 2024 uh about the upkeep of these properties, and also the junk fees.

MARK BRODIE: OK, so let's talk about some ways out of this, potentially. I know your report references a few of them, but let’s talk about the 21st Century ROAD to Housing Act, which, among many other provisions, includes a cap on the number of units institutional owners can own. That seems like it would be helpful for this, is it truly helpful?

LAUREL KILGOUR: Yeah, absolutely. So, so the ROAD to Housing Act was a bipartisan, huge omnibus collection of a lot of different housing bills, and some of them were about making it easier to get federal financing into construction, various different ways of boosting supply, which is important. There was also this uh provision that does provide a cap on future purchases um by institutional investors, so they they cannot buy more if they already own at least 350 homes.

MARK BRODIE: Not getting rid of what they already have.

LAUREL KILGOUR: It it does not get rid of anything that they already have, so everything else is grandfathered in, and so I think that is a a next step that both state and federal policy makers can look at. There are existing federal bills out there that would require kind of a phase divestiture, so you’re not flooding the market all at once, but you’re eventually going to sell off this inventory so to ordinary families instead of to Wall Street. So that is an additional step that that we can take.

Another additional step um that we can take at the federal level is to strip out some of the tax breaks that incentivize Wall Street to buy up these single-family homes. Um, you know, I think that that’s a very common-sense solution that would be another good step.

MARK BRODIE: All right, that is Laurel Kilgour, research manager with the American Economic Liberties Project. Laurel, thanks so much.

LAUREL KILGOUR: Of course, pleasure to be here.