Are Residential Corporate Buyouts Slowing Across Colorado?

Living in Colorado is hard. It’s not just the 8-foot snow drifts in the driveway. It’s the sheer cost of housing. Average housing costs range from $1,282 to $2,309 per month across the state, which is a contributing factor to issues like rising homelessness, reduced access to healthcare, and less money for basic needs like food and clothing. The rising strain on the housing market is partially due to national problems like inflation. Colorado is also a highly desirable place to live, creating a shortage of housing opportunities. Another issue revolves around corporations and investors that buy hundreds of properties across the state, single-handedly causing a spike in cost for the rest of us.

The Impact of Investors on Local Residents

The 2008 housing crisis created a new generation of homeowners and investors intent on reaping the benefits of an emaciated housing market. One concerning trend over the past 16 years revolved around the growing number of investors, as well as a cultural shift that demanded a higher return on the investment, contributing to skyrocketing rental prices in places where rent control is not present. The result is that it has become increasingly difficult to become a first-time homeowner in places like Colorado, and some populations are suffering more than others. 

A 2022 report showed that investors were more likely to head to cities where mortgage applications were being denied, a significant non-white population existed, and home prices were lower than the national average. Some states have begun to regulate investor activity like Georgia, Texas, and Arkansas, which could indicate that the nation is experiencing a growing problem. Colorado is experiencing a similarly distressed housing market. 

In 2022, a California corporation that had a history of raising rents by 50% announced its intention to buy a mobile home community in southwestern Colorado. Recognizing the potential devastation such a purchase would cause, community members rallied to fight the purchase. The city of Durango was already under duress since the post-Covid housing boom caused a 30% increase in property values across the region. Rising mobile home costs would further heighten those circumstances, likely resulting in community members leaving the area. 

After several months of effort, the community was able to work with the Elevation Community Land Trust to halt the sale. Today, the trust is working in conjunction with locals to make home ownership more feasible, although many towns in Colorado haven’t been so lucky. 

In 2021 alone, Texas-based corporation Invitation Homes purchased 350 homes in the Denver area. In 2019, the company purchased 193 homes. And in many cases, the company pays significantly over the asking price to acquire property. Today, Invitation Homes owns more than 80,000 properties across the nation. 

This trend indicates a growing interest in popular real estate markets like Colorado’s. It also falsely increases the value of properties, which pushes out the average home buyer in the region. Some studies even show that corporations are more likely to increase rent, evict tenants, and poorly maintain the properties in question. The corporate buyout of residential properties also means that decisions regarding the properties are typically made without local input. 

Invitation Homes declined to comment on its recent participation in the housing market in Colorado. 

The big buyout

After the 2008 financial crisis, the federal government started to provide incentives for corporations to buy foreclosed, residential properties. Fifteen years later, it was estimated that investors owned about 30% of residential properties across the country. This number sparks frustration from potential homebuyers who cite that investors inflate the cost of desirable markets in addition to providing cash offers well above the market price to sellers that the average American cannot match. Supporters of the buyouts claim that the market share is small enough to be inconsequential. 

In 2021 alone, investors spent $50 billion to buy about 80,000 houses across the nation. Three-quarters of those homes were purchased in cash, and 75% of the purchases were single-family homes. The city of Atlanta suffered the most from this particular buyout after investors purchased 32.7% of all homes for sale in the region. Some estimates suggest that investors will maintain a 40% market share of single-family homes by 2030. 

While slightly lower than the national average, Colorado contains a desirable market that has seen similar investment trends. In fact, in 2021, investors purchased 24% of residential properties across the region. 

Although anecdotal evidence suggests that some sellers are resistant to working with investors, the amount of money and cash value that many corporations provide is difficult to refuse. Investors often allow the seller to avoid costly repairs and remodeling prior to selling, which is another reason why working with a corporation can be appealing. The same moral dilemma is also prevalent among realtors, who make a living based on the percentage of a sale. The higher the listing, the more profitable it is for the broker, which incentivizes working with buyers who can offer more than the listing price. 

Are investors slowing down?

Colorado Springs-based realtor and analyst, Rob Thompson, has been an agent in the region for more than a decade. His focus is primarily on residential or multi-family properties. As a result, Thompson has had front-row seats to the latest investor trends across the city. 

In an interview, Thompson told Yellow Scene Magazine that he is personally witnessing fewer investor transactions in Colorado Springs. “…originally there [were]  a lot. Now though, [they’ve] backed off”.

Likely as a result of the rising cost of real estate, Thompson noticed a downward trend from investors. “ …A hedge fund actually called awhile back and they were…asking me about the market and what I thought. An analysis showed the top 100 sub-areas at the time were selling above 100% on the close to list price ratio”. Agreeing on the market’s status, the hedge fund told Thompson, “They were leaving the market, and they wouldn’t be back for a couple of years.”

The hedge fund was not the only company to make this decision. While many realtors and market watchers suggest that Colorado’s real estate market is trending in favor of sellers, Thompson noted that 23% of homes are currently being pulled off of the market, withdrawn, expired, or canceled. “So is it really a seller’s market if 23% of the market is pulling off the market? No, it’s not,” he said. Investors and average home buyers are witnessing a reduction in affordability, which is what Thompson thinks is driving the downward trend. 

Yet Thompson suggested the slowing investment trend is largely beneficial. “I think it’s a good thing, because it’s hard to compete with somebody who has a million dollars in cash. So, it’s a good thing for the average consumer”. 

Market Implications for the Average Buyer

As housing prices continue to climb, one of Thompson’s greatest concerns revolves around the average buyer’s ability to climb the real estate ladder. At one point in time, locals would purchase a property, sell it at a slight profit, and use the excess to land a better home. Today many buyers are facing low wages as well as inflated home prices, which makes owning a property extremely difficult. As a result, many buyers may be getting in over their heads, which could result in foreclosures. 

An increase in wages or reduction in cost could level the market, but Thompson thinks neither is imminent. “…I don’t think we’re going to see significant price drops…So when people say [the market is] gonna crash and burn, I don’t think it is. The government’s already showing that they will backstop the market to the tune of trillions of dollars in free money essentially to these institutions, right when you look at the M2 money supply”.

Another reality is that manually lowering home prices could be detrimental to some existing homeowners. “…consider what would happen if they did let prices fall? Or if a black swan event occurs, does that drop those prices? You’re talking about wiping out the equity of tens of thousands of homeowners, especially those who bought through COVID,” said Thompson. 

Studies Surrounding Investor Ownership

One recent Netherland-based study prohibited investors from purchasing single-family homes in a certain neighborhood. The investor ban increased middle-class home ownership in the neighborhood, although those who purchased homes were affluent, and the shift led to increased rent in the region. However, the home value did not increase like it often does when investors are at work. 

A common argument that anti-investors pose revolves around gentrification. However, a 2022 study demonstrated that investor home ownership maintained diversity but increased the cost of rent. Both of these studies demonstrate that some common assumptions surrounding the impact of investor properties are unfounded. So, the path to more equitable housing is unclear. 

The Future of Residential Home Ownership in Colorado

Determining when to buy a home can be a difficult process for anyone, but the current market is particularly challenging. Experts suggest that Colorado’s housing prices will continue to climb into 2025, although the rate of price growth may slow. 

In October of last year, available properties for sale in the United States fell by 2% over the previous year. Realtor.com noted that while there was a slight decline in property values nationwide, they’ve largely stayed the same due to declining inventory, and it is unlikely that the market will correct before the end of the decade. 

Thompson agreed that local real estate is unlikely to become more affordable in the near future. “I wouldn’t be surprised if home prices double in the next 10, 15, or 20 years as a function of inflation. Not as a function of market health,” he said. 

One potential reason why the average person won’t be able to keep up with investors is because of lagging wages. “What someone could afford 5 years ago is much different from what they can afford now. Affordability is driving a lot of the tension in the market”.

Budding Investor Regulations Across the State

It is easy to write corporations off as the “bad guys” while measuring housing analytics across Colorado. But who or what is at fault for the affordability crisis is complicated. 

“I wouldn’t blame institutional investors solely — they are a side effect,” said Thompson. 

He said that even if the government attempted to limit corporate buyouts, “the system will simply react by coming up with a workaround. …they would have designated someone as a primary purchaser and done it anyway. We’re chasing a problem that’s a systemic problem, in my opinion”. He added, “That’s not to defend the corporations.” 

Some government officials have taken notice of the rising housing share among investors and suggested heavily taxing investor purchases. Last year, a task force was established to investigate corporate ownership of housing in Colorado since 2008. The bill highlights the need for an investigation into corporate housing ownership to reduce its negative impacts. 

The bill was approved in June and enacted in August of last year. The task force’s main focus is on single-family homes, townhomes, and condominiums, and the data is expected to be used to make suggestions to Congress. The main purpose of a task force is to collect information. It is not yet clear whether or not Colorado’s government will make adaptations based on the task force’s findings. 

Creating More Affordable Housing Options

Nationally, the Biden administration has also taken steps to create more affordability across the housing market by supporting the conversion of commercial properties into residential properties. At the beginning of 2021, about 12,100 properties had been successfully converted from offices to apartment buildings across the United States. Three years later, the country contains 55,300 properties of the same description — a 357% increase. 

In August of last year, Governor Polis also signed an executive order into effect that should speed up the approval of loans and grants for affordable housing projects. 

At this point in time, Baby Boomers own 72% of the nation’s wealth and 38% of the nation’s homes. That wealth will be passed down to future generations, continuing to support a disproportional market share while those who do not inherit money and property will be forced into co-ownership.

Thompson suggested that single buyers are suffering the most from this market, but that there are ways to fight back. “There is a middle layer of things we can do. For example, what if you and I got the correct license and created a real estate investment trust and a charter? We raise the money and buy an apartment building. We set the rates at affordable rates. The market rent might be $1800 but we’ll set them at $1100. And we’re going to determine that profit is enough for us and our investors…But it’s got to be me and you – an individual acting with other individuals for community-oriented solutions.”

Jonathan Self, a Chicago-based broker, told Forbes that multi-generational homes and co-ownership will be the future of home ownership. “It’s simply going to happen — the restriction of inventory, the average American’s spending threshold, and the demand for housing are all conspiring to change how we view housing in America,” he said. 

The path to equitable housing is complicated, but as states become more and more impacted by rising home prices, some people are calling for transparency surrounding the entity that owns the home, tenant protections, and systematic change. Colorado is currently struggling with unaffordable housing like much of the nation, but renewed attention and efforts to collect data surrounding the changes could help to enact change to support the average person.