With the growth of institutional mega-landlords in Memphis, many have worried about how they would treat their tenants and their properties.
But these concerns may have missed the main point, according to new research from Austin Harrison, assistant professor at Rhodes College, and researchers at Georgia State University.
The bigger issue, Harrison told MLK50: Justice Through Journalism, is the sheer number of homes companies are purchasing and the fact that these homes seem quite unlikely to return to owner occupants anytime soon. Absent government action, this trend will make it extremely difficult for the city to grow its homeownership rate or even maintain its current one.
“If we continue to let more of our housing stock go into corporate hands, we’re never going to get it back,” Harrison said.
The trend is especially concerning, Harrison said, because these investment firms are targeting starter homes, making it harder for people to purchase their first home. While these companies’ investments have increased property values for existing homeowners and led to the renovations of some homes, Harrison argues the trend’s benefits don’t outweigh its costs.
MLK50 spoke at length with Harrison about his new research, published in Housing Studies. Below is a transcript of that conversation, edited for brevity and clarity.
MLK50: In your new paper, you looked into the different types of companies buying local homes and renting them out, especially large, institutional firms. One study I saw said that only 3% of Memphis homes are owned by companies who own more than 1,000 homes. Why is this a big issue?
Harrison: There has been tremendous growth in these big actors. It’s a new asset class.
They owned 0% of homes until about 10 years ago. Of the 24,000 sales in 2016 and 2017 we looked at, over half were investor sales. And of those, institutional owners made up like 1/6th.
Previously, the societal contract was, “We’re going to financialize housing, but it’s going to be in a way where the average person can purchase it.”
Now, companies are beginning to financialize housing to the point where we’re going to have a permanent renter class.
If we don’t see something from a policy standpoint, we’re going to be in a really bad situation.
Housing is a human right. Not an asset class.
This map displays the homes purchased by institutional mega-landlords between 2018 and 2020, according to Shelby County Assessor of Property data collected by Rhodes College assistant professor Austin Harrison. Map by Jacob Steimer.
Why are these purchases affecting homeownership?
It’s where they’re buying, and it’s what they’re buying.
They’re seeing the Memphis housing market as a distressed asset that they can buy and turn around for a quick profit. The problem is they don’t want to put a lot of money into the house, so they’re looking for homes that are relatively newer and in good condition.
They’re going to the low-hanging fruit — starter homes — in places like Cordova and Southeast Memphis.
Once these homes get into rental, it’s not like Cerberus or Prager is going to sell one house out of their portfolio of thousands to a young couple with a kid. They’re never going to do that. Once these behemoth hedge funds gulp up these properties, they’re staying in a behemoth hedge fund.
Why are they attracted to those neighborhoods in particular?
They want long-term growth. They want stability. It’s harder to build wealth in lower-income neighborhoods where property values can go up 500% one year and go down 250% the next.
They’re looking for good investments. And a 1920s home that needs $100,000 of renovations is not a good investment. A starter home in Cordova that’s zoned for a good high school is a lot better of an investment.
As for Southeast Memphis in particular, I think it’s just closer to more affluent areas. If you look at the home value growth in Collierville and in Germantown, you’re going to want to get as close to that area as you can. You’re probably not going to have enough capital to get in that area. But as close as you can get to that, the better.
Why do their purchases seem so clustered?
What they’re looking for is submarket control. If you’re looking for a single-family house that you can rent that’s near a certain school district, they want to dominate that area. Because that gives them the ability to set price points, to set eviction standards, to kind of control that market.
In other words, if I want to live in a three-bed, two-bath house within a certain school district in Cordova, an investor is trying to own every three-bed, two-bath house there.
That’s going to mean really bad things for working-class Memphians.
In your paper, you mention that institutional investors are more aggressive with evictions. Why is that?
Evictions are easy because the rent check is the icing on the cake for them.
If you’re an institutional actor and you’re buying in Cordova or Collierville, you’re almost certain that if you hold on to that 5-10 years, that investment is going to grow 8-10 percent per year. And that’s what you’re making most of your money off of.
That means they’re going to do things like evict easier. That means they’re not going to make substantial investments. Because to them, it doesn’t matter. The home’s value is going to increase anyway.
Conventional wisdom seems to be that corporate landlords don’t keep up their properties as well as mom-and-pop landlords. How strong is the evidence for that?
I don’t know if it’s better or worse. It’s just different. Mom and pops aren’t professionals. They don’t know the best ways to commodify housing to its furthest extent.
Personally, I’d rather have a landlord who doesn’t know the best way to maximize profits. There may be a lot of tenants who say, “I’d rather have someone I know can fix my sink,” and most people would agree with that. But if you can’t access that maintenance, then what good does it do?
“Mom and pop,” I think, is the best of bad options given our current rental-heavy housing market.
This is not a popular opinion, but I think what works best is when countries invest heavily in public, social housing. That is what a permanent solution to this “crisis” has looked like in other similar countries.
Assuming Memphis would need state or federal help to build the type of housing you’re talking about, what are some measures Memphis could enact itself, to help it corral out-of-town landlords?
Right now, code enforcement is very reactive. The research I’ve done in the past has shown they tend to spend their time at owner-occupied properties, which means it’s a poverty tax. They’re basically saying, “If you’re a low-income owner-occupant, we are going to penalize you. But we can’t get a hold of the out-of-town folks, so we’re going to let them skate free.”
I would love to see code enforcement create an investor accountability team. We have the data; we can tell you where those groups are. Just go to these properties constantly and talk to the tenants and see what’s going on. Then, throw the book at the owners.
I think we have the tools in our tool belt. We just need to target them better.
Code enforcement blames it on the union and on funding. But all they’re doing is responding to 311 requests. And you know who’s not sending 311 requests? Tenants who are scared of being retaliated against.
Jacob Steimer is the housing and development reporter for MLK50: Justice Through Journalism.
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