In this part two of a multi-part series. I’m exploring at how investors and other factors drove driving up home prices and what we should do to keep it from happening again. See the last article here.

Many of the counter arguments to the idea that investors are to blame for high home prices point to supply shortages, cheap money, work-from-home and zoning laws that make it difficult to build multi-family infill projects.

As mentioned in the last blog entry, boosters of investment buyers (private equity firms in particular) will tell you that they make up a dramatically small portion of the market.

“Institutionally owned SFRs represent less than a half of a percent of this market. If we were to narrow our focus solely to the rental market of single family homes, of which there are 16 million, institutionally backed firms only own 2.5% of the market. While investors purchase 20% of all homes nationally today, only 1–2% of homes are bought by larger investment firms. Most rentals are owned by small investors.“

And they would probably say, despite the anecdotal evidence of Realtor Ken in Phoenix, that most investors do infuse a lot of cash in to renovation all across the market.

To be fair, I don’t have and can’t point to any data to demonstrate that there is a trend of sub-par renovations out there. The converse may be the same for the other side.

They would tell you that cheap money encouraged many people over the last decade to buy new, bigger and second investment homes. Covid encouraged people to work from home and buy bigger homes that make working from home easier.

Layered on top of that, city codes and zoning ordinances that have favored SFRs over the last century make building multi-family (either owner-occupied or rental) even more difficult.

There is a great case to be made that, as a country, we decided almost a century ago that we would favor SFRs, despite the higher energy, road, water and land costs that go along with them, and we’ve hamstrung our ability to build more dense housing.

The NIMBY crowd is as strong as ever. You know what I mean if you’ve seen downtown neighborhoods’ social media blow up recently whenever a developer suggests a new project.

Further, developers I’ve met over the years will tell you that they can’t develop condo communities because the are unable to get liability insurance. Condos are the most likely to end up in construction defect lawsuits as soon as the warranty period ends.

That’s a whole other debate about litigation rights.

In the end, the equity-firms-are-not-the-bad-guys crowd might say, “blame the supplier, not the buyer.”

“So,” they would say, “don’t blame the less than 2% of buyers that are equity buyers for prices that were moving up dramatically, regardless.” They would argue that we are not in a bubble and that, given the long-term demand for homes, we are nowhere near it.

These arguments are pretty solid, in my mind. But, as I’ll cover in my next post, policy makers and realtors need to address them as part of a whole.