Commoditization of Residential Real Estate

The significant increase in the liquidity of residential real estate brought on by the slow down starting in 2006, the emerging foreclosure crisis of 2007, and the recession of 2008, created the peril that institutional investors would acquire and control major housing resources as a sound long-term investment asset. Over the past few years Residential Real Estate Investment Trusts (RREIT) have grown and publicly traded companies like Blackstone and Colony Financial currently own one and a half percent of the approximately 14 million rental homes in the U.S. RREITs have expended $20 billion to acquire somewhere near 200,000 single-family rentals in just the last two years. The type of single-family rentals desired by RREITs and their location is remarkably consistent: the ideal asset is a three-bedroom, two-bathroom house in a good school district and close to jobs. Like individual homebuyers, these institutional investors prefer long-term appreciation and therefore their target markets are infill neighborhoods over the new “exurban” communities.

When a small number of RREIT companies own a large number of homes, they have the ability to place a large number of homes on the market at the same time, possibly depressing values. Some are even exploring partial ownership or the right to use the home for a certain time period without becoming the owner. It has been estimated that this represents a $1.5 trillion opportunity. The single-family market could follow in the footsteps of the multifamily market, with a large percentage of all rental homes eventually being owned and managed institutionally. This could, over time, change the market dynamics of neighborhoods and subsequently the neighborhood agent.