Large investors, including pools of investment capital known as hedge funds, are increasingly moving into the landlord business and outbidding families to snatch up homes with cash offers. And the absentee owners are not exactly model landlords.
At a Sept. 25 press call, U.S. Senator Jeff Merkley (D-Oregon) joined Federal Trade Commission Chair Lina Khan to criticize hedge fund practices that are driving up rents and home prices.
“Huge corporate investors propped up by hedge funds have invaded our housing market, and they’re using their massive wealth to buy up single-family homes across the country,” Merkley said. “When you see all-cash offers on homes, or all-cash no-inspection offers, more often than not, it will be a hedge fund. They’re driving up the price to buy a home, putting a stake through the heart of the dream of homeownership. And they’re driving up the rents, pouring fuel on the fire that is the housing affordability crisis.”
Khan talked about a $48 million settlement her agency negotiated with Invitation Homes to settle charges that they deceived renters about lease costs, charged undisclosed junk fees, failed to inspect homes before residents moved in, and unfairly withheld tenants’ security deposits when they moved out. Invitation Homes owns about 85,000 rental houses nationwide and has holdings in at least a dozen states, including Washington in the Seattle area.
“Our investigation uncovered a whole raft of really predatory and abusive tactics,” Khan said. “Invitation Homes was charging people hidden junk fees and was deliberately deceiving people about how much they’d have to pay every month. People would see one amount for the rent, and then after they had signed the lease sometimes would learn that there would be hundreds of dollars in junk fees that people had not budgeted for.”
The FTC also filed suit in August against a Texas software firm called RealPage Inc. for creating a system that enables landlords to illegally collude to increase rents. The way it works, landlords share sensitive information about what they charge for rent, and then an algorithm suggests that they raise the rent to what other nearby landlords are charging. Joining the lawsuit are the attorneys general of Oregon, Washington, and six other states. It has yet to go to trial.
Merkley, meanwhile, introduced a bill in the Senate last December called the End Hedge Fund Control of American Homes Act, S. 3402. U.S. Representative Adam Smith (D-Washington) introduced a companion bill in the U.S. House. The bills would discourage large-scale investor landlordism by assessing a $20,000 federal tax penalty for each single-family home owned in excess of 100. The House bill has 16 Democratic co-sponsors, including Andrea Salinas of Oregon. The senate bill has two cosponsors, Democrats Jon Tester of Montana and Tina Smith of Minnesota, but Merkley acknowledged that it has little chance of passage given the Senate’s self-imposed filibuster rules that require support from a three-fifths majority before legislation can be voted on.
