6 Summary
The loss of homeownership caused by the subprime mortgage crisis allowed all kinds of investors with access to cash to pick up the pieces.
In some cities, that initial boom in rental home investment featured a new breed of private equity backed institutional investors. The largest of these is Invitation Homes, which is now publicly traded and owns about 80,000 properties.1 Invitation Homes and its competitors focused on Sunbelt metros with growing populations and more recent housing stock.
1 https://www.invitationhomes.com/about-us
Instead of these large companies, Milwaukee’s out-of-state investment during the early and mid-2010s mainly came in the form of wealthy individuals from states like California, Illinois, Texas, and Florida. They would buy houses in Milwaukee for what seemed to them like bargain basement prices, list them for comparatively high rents, and contract with local property managers for all the physical requirements of being a landlord. None of this requires an actual corporeal presence in the city. At least one California-based landlord interviewed by the Milwaukee Journal Sentinel admitted that she had never as much as set foot in the city. There are Youtube channels and web forums full of people discussing the merits and logistical details of this kind of investment in Milwaukee. Multiple local property managment companies explicitly cater to these kinds of investors on their websites.
In the late 2010s, a few private equity backed companies realized they could successfully apply the “SFR” business model developed in the Sunbelt to postindustrial cities with declining populations. Research suggests they may not stand to gain as much from property appreciation as investors in wealthier cities, but the profits from rent in these cheaper, poorer cities is likely even higher. This is because rents do not decline proportionately with home values.
Of course the combination of low home values and high rents also encourages many residents to seek out homeownership. Owning one’s own house is a realistic proposition for a wider swathe of the income distribution in Milwaukee than it is in superstar cities, where home prices often exceed the reach of even traditional middle class professions like public school teachers and municipal employees.
Three private equity backed companies entered the Milwaukee house rental market around 2018. Unlike most of the individual investors who preceded them, these companies are vertically integrated. They conduct their business, ranging from acquisition to property management, in-house. Their deep financial backing allows them to buy at a pace previously unseen in Milwaukee. Instead of buying properties one-at-a-time from distressed homeowners, these companies mostly buy from other, smaller landlords. Recently, each company has used multi-property sales to buy out whole portfolios of their smaller competitors.
These private equity landlords make homeownership less attainable, not necessarily by driving up prices, but by purchasing affordably priced properties in such a way that residents are entirely excluded from the marketplace.
In an effort to address this dilemma, Acts Housing launched an acquisition fund in August 2022 designed to compete with large investors.2 Ideally, the fund will be able to match the advantages of speed, liquidity, and scale that currently keep aspiring owner-occupiers from competing with larger investors. After purchasing properties, Acts Housing will use its existing operations to sell those homes to community members. The fund has a stated goal of acquiring 100 houses in 2023. Based on current trends, that would put them in strong competition for being the second-largest purchaser of houses in the city.
2 The fund was launched in collaboration with the Community Development Alliance and with an initial $1 million grant from the Zilber Family Foundation.
As Milwaukee’s housing market continues to evolve and draws more interest from outside investors, creative approaches like this one will be key for local actors promoting safe and affordable housing.