Private equity-backed companies are gobbling up vast swaths of residential property across the country, including in Omaha.
They are buying up hundreds of thousands of homes every few months. Then they are renting them out, often for more money, and often in neighborhoods with larger Black populations and more single mothers than the national average.
The result: The number of tenants behind on rent in these homes has nearly doubled in the past three years, according to a new report by the House Committee on Financial Services examining practices of the five largest institutional landlords.
The Congressional committee and many other groups are now seeking to understand the impact that private equity companies are having on American homeownership – and searching for solutions to this new problem.
Nebraska is not immune. According to a recent investigation by Flatwater Free Press and KETV Channel 7, Vinebrook Homes has been the largest buyer of single-family homes in Douglas County in the past two years. Vinebrook now appears to be the third-largest landlord in the city, with most properties concentrated in North Omaha.
Across the nation and the Omaha metro, community groups and local leaders are searching for answers to the following question: Should they combat companies like Vinebrook? If so, how?
Other states are trying to enact laws to regulate private equity landlords by preventing bundled sales and giving local residents more purchasing power. Nonprofits are trying to fill in the gaps, promoting homeownership through community land trusts. In Omaha, city-wide grant programs and local organizations are working to support homeownership in low-income neighborhoods, though much of the work is embryonic.
Many Omaha residents may not know about out-of-state real estate companies like Vinebrook. But in other cities – including some where private equity-backed companies started buying up homes more than a decade ago – there’s a growing recognition that the Vinebrooks of the world have vastly changed the homeownership landscape.
“Many residents….suspected that something was going on,” said Rutgers University Law Professor David Troutt, co-author of a housing ownership study focused on Newark, New Jersey.
“They knew it for the number of houses that seemed to be changing hands, they knew it from rising rents, and they knew it from the badgering calls, knocks on doors, circulars dropped in people’s mailboxes, but they didn’t know exactly what.
“And now that they know…that it is an unprecedented number of outside investors seeking rent…there’s been a sense of ‘what next?’”
Across the country, some state leaders are trying to change the home-purchase process itself – moves they hope will minimize the effects of Wall Street ownership.
In 2020, California signed a law to prohibit the bulk sale of foreclosed properties at auction. It raised fines for vacant property owners who fail to maintain their homes.
The bill also restructured foreclosure auction practices. If the highest bidder at a foreclosure is someone planning to live in the home, the sale is complete. But if a company like Vinebrook buys that same home, the sale is delayed for 45 days to allow an “eligible bidder” to match or exceed the bid. Eligible bidders include current tenants, prospective owner-occupants, nonprofit corporations and housing collectives.
In May, Ohio Sen. Louis Blessing introduced a bill calling for a similar 45-day holding period in his state.
“In Ohio, there was no other legislation that even spoke to this issue, let alone any more than people just talking about this locally here and there. We needed to have a state-level conversation on this,” Blessing said.
Blessing mentioned other ideas: Maybe a “Clean Hands” doctrine to bar any foreclosure bidders with outstanding code violations in that city; Maybe tax incentives that promote homeownership.
City leaders across the country are also demanding reform.
Atlanta Mayor Andre Dickens called for legislation to limit the corporate investors that purchased one-third of homes in Atlanta during the first quarter of 2022. In Newark, Mayor Ras Baraka announced a slew of initiatives to combat investment corporations. He urged legislators to mitigate the effects of real estate behemoths buying up homes.
The inspiration for Mayor Baraka’s latest initiatives: A “Who Owns Newark?” study which found that 47 percent of the city’s one-to-four unit buildings were bought by outside companies.
The Rutgers University study suggested regulations to keep rents and homeownership affordable, discourage speculation, promote community stability and require owner transparency.
“The local government is always limited in…what it can do to regulate the market,” said Troutt, the study’s co-author. “But it can ensure that people live in decent, sanitary housing. It can clamp down on aggressive, exploitative practices by landlords. It can protect vulnerable tenants like the elderly and the poor and the disabled from being manipulated or unfairly displaced.”
New legislation may not rebalance the David-and-Goliath matchup many residents face when trying to buy a home.
For example: Even with a holding period, a potential homeowner still must be able to match the sale price paid by a multi-million dollar company. To help combat this, California allocated $500 million in the state budget last year to the Foreclosure Intervention Housing Preservation Program.
Land trusts also may close the gap between Wall Street real estate companies and residents trying to buy their first homes.
Community land trusts, often called CLTs, are nonprofits that hold land in a trust permanently, allowing people to purchase property on that land and enter a long-term, renewable lease. A 2019 study by the Lincoln Institute of Land Policy found that land trusts lowered the annual move rate to 2.6% in areas where they operate, markedly lower than the 6.9% move rate of all U.S. homeowners.
Northern California Land Trust, the oldest community land trust in California, offers 120 units of housing ranging from affordable rental units to single family homes.
“A lot of people share that, there’s no way that they would be in the Bay Area if it wasn’t for living in a land trust property because they wouldn’t have been able to afford it,” said Sarah Scruggs, policy director at Northern California Land Trust.
There are no community land trusts in Nebraska. Although the Omaha Municipal Land Bank sounds similar, its programs differ in the length and depth of the organization’s involvement. Community land trusts, for example, focus solely on affordable housing.
But there is some action locally.
In Nebraska, Front Porch Investments awarded $7.3 million in March to promote development of local affordable housing. Awardees were a mix of nonprofits and redevelopment groups, including Habitat for Humanity, who broke ground last month for the $25 million Bluestem Prairie development in North Omaha.
“The concept of buying properties to then have portfolios is a story as old as time,” said Naomi Hattaway, Director of Communications and Community Strategy at Front Porch Investments. “We can’t just point fingers and say you’re bad. But if we can’t offer solutions, or hold them to a higher bar, it’s all for naught.”
inCOMMON Community Development was also on that awardee list.
inCOMMON’s neighborhood work began in Omaha’s Park Avenue in 2008, and expanded into the Walnut Hill neighborhood, located near Saddle Creek Road, in 2019. The organization creates neighborhood plans after meeting with residents and forming a guiding committee of residents and other stakeholders. inCommon also maintains two community centers that provide English as a second language, GED, citizenship and workforce preparation classes.
inCOMMON’s co-director Christian Gray, a resident of Park Avenue, sees the impact of investment corporations.
“How can we help neighbors capture some of the land before it goes to sale too quickly, whether that’s single family residences or vacant lots or land assemblies?” Gray said. “Immediately off the bat, we began to notice how difficult it was to win any bids in the neighborhood.”
Gray said inCOMMON is establishing a second nonprofit organization called inCOMMON Housing Development and exploring community land trust models. It would be the second community land trust established in recent years in Nebraska, following Lincoln’s five-year South of Downtown community land trust, which closed at the end of 2021.
The organization is redeveloping 75 units of affordable housing through the Low Income Housing Tax Credit, a federal income-based housing program, on Park Avenue. Gray said inCOMMON also frequently speaks with outside developers looking to purchase in the neighborhood, trying to encourage affordability.
“There’s a… lack of interest from most developers that we’ve talked to,” Gray said. “There’s not an interest to pursue, there’s not that will. That tells me that we’re lacking affordable housing incentives, in that we’ve made affordable housing too complex.”
Nonprofit involvement as a solution is not without criticism, especially concerning its specific involvement in North Omaha. State Sen. Justin Wayne, who represents parts of Northeast Omaha, said he didn’t see much of a difference between nonprofits and companies like Vinebrook.
“Everybody’s worried about the private companies now, but nonprofits have been buying land in North Omaha for the last five years and nobody said anything,” Wayne said after a May 26 housing forum co-hosted by the Flatwater Free Press. “To me it doesn’t matter if it’s a nonprofit or a private person, private equity firm, something like that, they’re still buying up the land, so the issues are the same.”
City of Omaha officials say they are stepping in to support homeownership in the face of companies like Vinebrook buying up massive amounts of real estate.
One plan: The Choice Neighborhood Program, a federal Housing and Urban Development program that offers competitive grants to revitalize neighborhoods. Omaha received $26 million through the program in 2019, and is putting $500,000 toward a program to fund projects by owner-occupants that improve the aesthetics of homes in North Omaha.
Despite the work of organizations and city governments, private equity firms continue to buy property across the country. In fact, national real estate companies bought nearly one of every five homes sold in the United States during the fourth quarter of 2021.
“People know precious little about what’s going on, in many ways,” said Troutt, the Rutgers professor. “Once it’s better known and becomes a topic of conversation, people come up with all sorts of really ingenious ways of dealing with things. But they have to know that they’re going on.”