WASHINGTON — Witnesses in a Tuesday hearing detailed to a U.S. Senate committee how investors and stagnant wages are driving an eviction and housing crisis across the U.S.
The chair of the Senate Banking, Housing and Urban Affairs Committee, Ohio Sen. Sherrod Brown, said that families are being priced out of buying homes, and rising rents mean that tenants are “just one illness or job loss or car repair away from eviction.”
“More and more, investors are buying up single-family homes — homes that first-time homebuyers usually buy — and renting them out at sky-high rates,” Brown, a Democrat, said in his opening statement. “Twenty-eight percent of homes sold at the beginning of this year went to investors.”
One of the witnesses was Matthew Desmond, a sociology professor at Princeton University and director of the Eviction Lab, the only research team in the country dedicated to understanding the causes and consequences of housing instability in America.
Desmond said that regions across the country have experienced a huge surge in rents. Since 2000, median rent has increased by 112% in the Midwest, 135% in the South, 189% in the Northeast and 192% in the West, he said.
“Last year, rents increased faster than they ever have on record,” he said, adding that across the nation the median rent increased 17% in one year.
But some cities saw double that, he said, such as 40 percent in Portland, Oregon; 35 percent in Newark, New Jersey; 30 percent in Orlando, Florida; and 29 percent in Cincinnati, Ohio.
“When the cost of housing rises 15, 25, 30 percent, what can families do?” Desmond said. “They can’t relocate to affordable housing because they often are already living in the cheapest apartments available. All they can do is cut back on other necessities, including health care, educational enrichments, and food.”
The ranking Republican on the committee, Sen. Pat Toomey of Pennsylvania, blamed the Biden administration for inflation and said that “government, and especially this administration, have often been the problem, not the solution, when it comes to housing.”
“Democrats’ wasteful spending, growth-killing regulation and excessively accommodative monetary policy are exactly what led to 40-year-high inflation and contracted our economy,” he said in his opening statement.
Toomey asked one of the witnesses, Darion Dunn, who is the managing partner of Atlantica Properties in Atlanta, Georgia, if government actions that raise costs to landlords get passed on to tenants.
“Generally that is the case,” Dunn said. “Those costs have to be passed on because they’re such relatively small margins.”
Sen. Jon Tester, a Montana Democrat, said that people in his state are also having trouble finding affordable housing.
“The price points have gotten too high,” he said, adding that the median home sale price has increased about 40% in his state in the last year. “This is pushing more people from potential homeownership to looking for homes to rent.”.
He asked one of the witnesses, Laura Brunner, the CEO and president of the Port of Greater Cincinnati Development Authority, what can happen to communities where homeownership is out of reach.
“There is a profound impact on local families when homeownership opportunities are taken away from them,” she said.
Investors buying houses
Institutional investors are market actors that have access to capital and can be anything from private equity firms to financial institutions through real estate investment trusts.
Brunner told senators that institutional investors are changing the landscape of single-family housing in Hamilton County, Ohio.
She said that access to affordable rentals and housing has become increasingly more difficult due to institutional investors. While investigating some of the worst landlords in Cincinnati, her team found that more than 4,000 single family homes in Hamilton County were bought by five institutional investors since 2013.
One of those institutional inventors, VineBrook Homes, was sued by the city of Cincinnati for building code violations and by tenants for poor living conditions and fraudulent security deductions.
Brown asked Brunner what Congress could do to help places like Cincinnati keep homes affordable for families and boost families to become homebuyers.
She said Ohio is typically a target area for these investors, because they buy homes in areas in the “state’s most disinvested neighborhoods.”
“This is something that is happening throughout Ohio,” Brunner said.
She said one way to make it easier for local jurisdictions to find which properties are owned by institutional investors, which typically file under LLCs, is to require those investors to register with localities.
For example, VineBrook, was listed under 90 LLCs, making it difficult to track.
Desmond said that in 2021, it was estimated that institutional investors made up about 2.3% of the single family rental market, or 340,000 single family homes.
But while that’s small, he said, these investors “have a much larger footprint” in some metropolitan areas, particularly in sunbelt cities like Atlanta, Georgia, Phoenix, Arizona, Tampa and Miami, Florida, and Charlotte, North Carolina.
Brunner said in Hamilton County, that could mean 50% of the houses on the street are owned by institutional investors.
“When the geographical impact is so concentrated, it has a game- changing effect on what it means to live in that neighborhood,” she said.
These institutional investors are not building homes, she said.
“They are switching homeowner properties to rental properties and hiking up rents,” Brunner said.
Sen. Raphael Warnock, a Georgia Democrat, said that “there’s no question that we need more housing stock.”
He said that in his state, around 45% of Georgians spend more than 30% of their income on rent and 1 in 5 spend more than half of their income on rent.
“Georgians are being crushed by rent all over the state,” he said.
Warnock asked Yentel how long it would take for housing supply to finally catch up.
“It will take years, if not more than a decade,” she said.
Diane Yentel, the president and CEO of the National Low Income Housing Coalition, also said that stagnant low wages and rising housing costs played a major role in housing instability. The NLIHC is a nonprofit that advocates for affordable housing in the U.S.
“Growing inflation, rising rents, and declining real wages are particularly challenging for the lowest-income renters,” she said.
Yentel said the average U.S. minimum-wage worker would need to clock in 96 hours a week to afford rent on a two-bedroom home, or work 79 hours a week to afford the rent of a one-bedroom home at the fair market rate.
NLIHC estimates that a housing wage — which is the hourly wage a full-time worker must make to afford an apartment without spending more than 30% of their income — of $25.82 an hour is needed for a modest two-bedroom home. The federal minimum wage is $7.25. The city with the highest minimum wage in the country is SeaTac, Washington.
Yentel said that more than 24 million people work in five of the lowest paying occupations — retail, food and beverage services, personal care services, home health aid, building cleaning services and food preparation.
Sen. Bob Menendez, a New Jersey Democrat, said that in his state, a medium-income renter is barely able to pay for a one-bedroom home. He asked Yentel how transportation can also be an issue for low-income renters, who might rely on public services.
“We also have to be careful when we work on transit, to not cause displacement or gentrification,” she said, adding that existing affordable housing needs to be preserved.
Desmond said that even when wages increases, the relief from the burden of rental costs was only temporary. He said since 1985, rent prices have exceeded income gains by 325%.
He cited a study by the Federal Reserve Bank of Philadelphia that found “landlords quickly responded to the wage bumps by increasing rents, which diluted the effect of the policy.”
“The implication is that investing in affordable housing isn’t only necessary to ease families’ rent burdens and promote community stability,” he said. “It is also essential because of the success of all other economic mobility effort depends on it.”
White House summit
Separately, the White House held a summit Tuesday where Desmond, Yentel and other housing and eviction experts discussed lasting eviction reforms.
The White House said that as funds for emergency rental assistance begin to wind down, the summit would focus on “an all-out effort to build lasting reform,” including through use of remaining emergency recovery funds.