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Institutional Investors: Unlikely Buyers in Ohio’s Market
November 10, 2021

Institutional Investors: Unlikely Buyers in Ohio’s Market

by The CE Shop Team

Ohio Homebuyers Are Running Into New Competition

Homebuyers are competing against unlikely competitors that are impacting hot real estate markets across the U.S.: institutional investors. These investors are adding more pressure to the already competitive real estate market, particularly in Ohio. The average sale price of a home in the first six months of 2021 was up 15.8% compared to the same time in 2020, and this growth isn’t expected to slow anytime soon.

Before we jump into Ohio’s situation specifically, let’s get on the same page regarding the term “institutional investor”:

Inherently, institutional investors are companies like BlackRock or extremely wealthy individuals à la Warren Buffett. So, what are institutional investors doing in Ohio — and how are they impacting prospective homebuyers? 

Institutional investors are making it harder for homebuyers to compete in Ohio

Ohio Homebuyers Are Between a BlackRock and Hard Place

Ohio home appreciation values are the highest they’ve ever been (boasting a 5% increase between Q1 and Q2 of 2021), and corporate buyers are investing more heavily in Central Ohio real estate as a result. Institutional investors like BlackRock are targeting real estate markets like Central Ohio due to its inventory of affordable houses. 

Organizations like BlackRock are targeting affordable homes that are often sought by the middle-class. BlackRock has so much capital that they are able to buy multiple single-family houses at a time, paying 20-50% above the asking price and outbidding normal homebuyers.

“Basically, what they do, they offer sight-unseen offers, and they’re contingent on a due diligence period of varying lengths, usually no more than 14 days,” said Troy Marsh, an Ohio real estate agent, in an interview with NBC4i.

Marsh said the affordability of Ohio’s market is attracting all of these big-time buyers.

The Columbus Board of REALTORS® says home sale prices are up nearly 22% from May 2020 to June 2021, and inventory under $250,000 is down 10% compared with 10 years ago. This means homebuyers, especially first-time homebuyers, are being pushed out of the market as institutional investors gobble up properties left and right.

The Impact on Ohio’s Rental Market

The competition and affordability squeezing Ohio’s real estate market are not only impacting the residential market, but it’s also affecting Ohio’s rental home market. Ohio is in the top 10 real estate markets where rental home companies own the most properties. Investors realized that single-family rentals were an asset class that was performing well pre-COVID-19 and thrived during COVID-19.

States Where Single-Family Rental Home Companies Own the Most Properties

 
  % Single-Family
Rental Homes
% All Housing
Georgia 5.14% .85%
Florida 4.18% .57%
Arizona 3.71% .61%
Nevada 3.26% .65%
North Carolina 3.00% .45%
Tennessee 2.60% .42%
Texas 2.04% .30%
Indiana 2.01% .32%
South Carolina 1.71% .22%
Ohio 1.25% .22%

Source: National Rental Home Council

This isn’t a recent issue; institutional investors purchasing single-family rental properties began over a decade ago during the foreclosure crisis of 2008. Most of the assets that BlackRock owns were purchased during this time, and their real estate rental company Invitation Homes owns over 80,000 rental properties

Institutional investors own more than half of the country’s multi-family properties compared to an estimated ownership of 2%-3% of single-family rentals. BlackRock alone owns around $60 billion in real estate assets, which seems significant. However, when compared to the $36 trillion U.S. housing market, it’s pennies. 

While hedge funds and iBuyers aren’t to blame for all of the real estate market’s current issues, they could create problems for renters who have to live in these homes. It’s been documented by Reuters, The Atlantic, and other reputable sources that these investors often neglect bigger, more impactful repairs and squeeze tenants for money through increased rental prices.

All of these purchases, home price increases, and housing affordability issues boil down to one key issue: the lack of new development to bolster the dwindling housing inventory.

The Real Problem Is the Lack of Development

Three million people are expected to live in Central Ohio by 2050, an increase of over one million residents. Where will these new residents call home when the state is already lacking housing inventory? The number of homes for sale in Ohio is down nearly 14% compared to last year, and newly listed homes are down almost 3% year-over-year.

Local governments need to issue more permits to allow more housing projects to restore the available inventory. The key here is that new development should be focused on affordable single-family homes, not higher-priced luxury properties. 

Laurie Goodman, vice president of housing finance policy at the Urban Institute, also highlighted that policymakers could level the playing field between investors and regular buyers in an interview with Slate Magazine. She suggested that the lack of timeliness associated with Federal Housing Administration loan paperwork often dissuades sellers from entertaining FHA buyers, even if they’re offering a sizable bid. Similarly, those looking to use a rehab loan for a fixer-upper property will struggle to compete against institutional investors. Revisiting the processes for FHA and rehab loans could “put individuals on a more equal footing,” Goodman said.

And the ability to influence change doesn’t stop with policymakers and local governments: residents have a role to play, too. By electing local officials that reflect their community’s needs, locals can help push for new development. 

For their part, developers say that land availability, zoning, density restrictions, regulations, construction costs, and a lack of skilled workers are all contributing to the issue of housing. As housing markets across the U.S. continue to face supply chain issues, high demand, and low housing supply, we can only hope that all of us can come together to encourage and enable new housing developments.

What does housing inventory look like in your local market? Are you concerned about the lack of new development? Let us know in the comments below!

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