How Wall Street Buy-Ups Have Affected The 2023 Rental Market

As mortgage rates and home prices have risen over the past few years, many people have been priced out of the home-buying market, instead being forced to rent. Unfortunately, however, finding a house or apartment with reasonable monthly payments has become more difficult, too. According to Credit Karma, the price of rent has been increasing, on average, by 5.77% per year, but it jumped a massive 14.07% from 2021 to 2022, likely as a result of inflation, increased numbers of renters, and a decreased supply of available properties.

As people with average incomes become priced out of the real estate market, Wall Street investment firms see an opportunity to purchase available properties and turn them into rentals. This phenomenon isn't new — after the 2008 recession, the government-backed corporations looking to purchase foreclosed single-family homes — but in the wake of recent market instability, investors' share and control of available rental properties is continuing to grow. 

Across the board, this influx of Wall Street buy-ups could mean reduced opportunities for families looking to purchase reasonably priced homes. This could cause an increased number of renters and resulting lack of adequate supply, placing control right back into the hands of investment firms. This demand could be slightly tempered by the recent spike in built-to-rent homes, but the likelihood of higher rent rates universally is high.

These increases are especially true for states in the Sun Belt — a strip that covers 18 states across the southern portion of the country — as these areas have been hit the hardest by housing inflation in recent years. According to CNBC, the cities with the highest rent increases for a two-bed detached home from 2020 to 2023 include Tampa, Phoenix, and Atlanta, each seeing significantly larger increases in price than the already-alarming national average of 24%. After being forced to pay higher rent rates, these renters could have a more difficult time saving up to purchase a home, essentially trapping them in a continuous rental cycle.

According to data from Yardi Matrix, the percentage of single-family residences owned by institutions has grown to about 5% as of 2022, but we will likely see a larger market share in the coming years. MetLife Investment Management forecasted that by 2030, the institutional buyer market share could increase to 7.6 million homes or 40% of the market. As this trend continues, lawmakers are calling for limits on investment firms' purchasing power, but proponents argue that, currently, 5% of the market share isn't enough to make any real difference or signify control by large institutions.

As of now, the future of the housing market is uncertain, but it's clear that Wall Street will continue buy-ups as long as the opportunity presents itself. If legislation is passed to set limits on this, however, investors could step back, choosing to sell the hundreds of thousands of properties they currently have on hand in favor of another, more lucrative option.