Investors are snapping up affordable homes, especially in black neighborhoods

Florida homeowner Shanica Rose used to bid for the sale of her home in the historic black community of Paramore in Orlando.

“I actually got text messages three times in the last month from the same phone number, asking to buy my house,” says Rose, who grew up in Central Florida and bought a home in Paramore in 2018.

As a homeowner, Rose is in the minority among her neighbors.

“Only 10% are owners,” she says. “I would say at least 80% of the homes here are investor property.”

Parramore’s housing situation is not unique. It’s being repeated in major American cities across the country. More than 13% of all homes sold in 2021 have been sold to investors, according to the National Association of Realtors (NAR). First time home buyers make up 30% of the market right now. In a healthy market, 40% of buyers are first-time homebuyers, NAR says.

“It’s been very difficult for homebuyers to find affordable or start-up homes. And when they buy low-cost homes, they’re competing with investors who come in with cash offers and it’s hard to compete with them,” says Ann Ray, a researcher at the University of Florida’s Schimberg Center for Housing Studies. .

It’s a trend that has accelerated during the pandemic, according to the NAR.

“We’ve seen, during the pandemic especially, investors, whether it’s a small investor or an institutional investor, enter the market for rental properties,” says Jessica Lutz, NAR’s vice president of demographics and behavioral insights. “Investors are jumping into the market realizing that there is a demand for rental properties and this really allows them to increase rents and have this as an investment property that can be an income generator.”

Technology is making it easier for investors to buy affordable homes on a large scale.

“I think what’s relatively new is that these large investors are picking a lot of real estate, using a lot of automated tools and working on a large scale to acquire real estate,” says Ray. “It used to be more difficult to do.”

When potential buyers can’t afford to buy, the wave effect can spill over into the rental market.

“It also makes it difficult for other people to find affordable rental housing, because people who would have moved from a rental unit to an ownership unit will be staying in the rental unit,” Ray says.

Among the homes favored by investors are mainly those in the black zip code, such as the Rose estate. The Washington Post analyzed 40 major metropolitan areas in the United States and found that black neighborhoods were “heavily targeted”.

“Investors are likely to buy more affordable properties, those that are 26% below the median home price,” says Lutz. “The higher concentration of institutional investors appears in lower-income, racially diverse areas, particularly predominantly black home areas.”

Investor activity is particularly high in states farther south, from Arizona to Florida, which comes as no surprise to Rose, who sees change happening around her.

“The gentrification here at Paramore. You can’t stop it,” she says. “What hasn’t happened, in my opinion, is the lack of a concerted effort to increase the financial opportunities for the people who live here so they can stay here. Communities have done that, they’ve redeveloped it, and they’ve been able to keep those people there.”

One solution could be to develop more community land trusts, which are nonprofit organizations that acquire homes and land for the purpose of permanently keeping housing costs down. Often in these trusts, the equity in the home is split between the nonprofit and the homeowner once the homeowner sells the property at an affordable price.

“(Community land trusts) have been particularly successful at keeping homeownership affordable in neighborhoods threatened by gentrification, often in traditional African-American neighborhoods close to downtown where gentrification has occurred,” Ray says. “This keeps units affordable over the long term. It allows the neighborhood to be more economically diversified.”

Rose, who founded an organization called Change for the Community shortly after purchasing her Parramore home, would like to see additional homeownership opportunities for communities of color.

“If you keep building condos, which I find is happening in predominantly African-American communities…without condos, you’re not creating generational wealth in any way, shape, or form,” says Rose. “You continue the rental cycle. So I think governments, especially here locally, need to start looking at how do they create ownership opportunities?”