Traditional Buyers Facing More Competition From Cash-Carrying Investors
NOV. 29, 2023…..The housing crisis that has suffocated Massachusetts renters and would-be buyers with record high costs and few options stems from decades of sluggish production and an economy that continues to attract more workers to the greater Boston region.
There’s another factor driving the strain, too: profit-seeking investors are snapping up properties at an increasing rate, making it more difficult and pricier for everyone else to compete, according to new research.
A report published Tuesday by the Metropolitan Area Planning Council estimates that about one-fifth of all properties in greater Boston between 2004 and 2018 were bought by an investor or speculator, pushing prices upward for everyone else and putting once-affordable homes out of reach for many low- or moderate-income families.
“That fact in itself is pretty staggering,” Jessie Partridge Guerrero, the report’s lead author, said in an interview. “I think what’s worse is that this rate is higher in urban communities of color in the region. We see almost a third of properties in our dense, urban communities of color are purchased by an investor.”
Investment in residential real estate is not a new trend, but Guerrero said data show the practice has been growing here since the Great Recession. In 2004, investors were responsible for about 16 percent of home sales in greater Boston; by 2018, the share had grown to 23 percent, the report found.
Authors based their analysis on real estate transaction data purchased from The Warren Group. They defined four types of residential property investors: those who purchased more than three residential properties within a five-year period, those who purchased any residential building with four or more units, those who spent an average of $150,000 per year on residential property during the study, and more traditional LLC buyers.
Unlike an individual or family trying to purchase a home with a mortgage, many investors have enough capital to offer cash, giving them a sizable competitive advantage, researchers said. They added that many sellers would take a cash bid over a higher mortgage bid, allowing wealthy investors to buy properties effectively at a discount.
Guerrero said the burst of investor purchases is “tightening an already extremely tight market.”
“This investor activity is really taking properties that might still be affordable to low- or moderate-income households that want to purchase a house — not only are they taking that off the market, but then they’re reselling it at a higher price, which will not be obtainable for that low- or moderate-income household,” she said.
In some cases researchers examined, investors purchased apartment buildings or triple-deckers, then increased rents substantially or even served eviction notices, Guerrero said.
The area’s housing market has been notorious for years. In October, the median sale price for a single-family home in greater Boston rose to $714,950, 10 percent higher than the same month a year earlier, according to The Warren Group.
A new tax relief law Gov. Maura Healey signed expands tax credits and incentives available to developers, but otherwise, the Legislature has taken little action this year to rein in the housing affordability crisis. Lawmakers are likely to wade into the topic next year when they unveil a counterproposal to Healey’s $4.1 billion housing bond bill, which the new governor filed in October and packed with funding and a slew of policy changes designated to generate production of more homes and apartments.
MAPC’s report pitchedpolicy recommendations to rein in the role that investors play buying homes, including measures to increase transparency for LLCs, allow communities to cap rent increases, and expand housing aid options such as the Residential Assistance for Families in Transition program (RAFT).
“The reality is that to build our way out of this crisis is going to take decades, and in the meantime, tenants are being displaced,” Guerrero said. “We need policies that will help tenants remain in their homes, including limiting the amount their rent can be increased, especially when the property is resold to a new owner, which we see over and over again causes real instability.”
One controversial reform they highlighted already has Healey’s support: allowing cities and towns to impose levies on high-value real estate transactions and use the revenue to fund affordable housing investments.
Healey included language in her housing bond bill clearing the way for local-option transfer fees, which have long drawn opposition from real estate industry leaders.
Guerrero said the policy would generate more resources to invest in affordable housing and “deter speculation” by eating into the margins for investors.
