The average Phoenix renter knows the city’s housing prices have become consistently out of reach for most residents. One Zillow search for a central Phoenix home will have residents deleting that screen.
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It wasn’t always like this. Phoenix used to be considered an affordable housing paradise. And while it may look that way for Californians looking to move inland, homeownership has become a pipe dream for many native Arizonans. But according to a recent study published by the American Economic Liberties Project, it isn’t out-of-towners limiting homeownership opportunities.
That’s Wall Street’s fault.
The that corporate housing companies and institutional investors have systematically converted Phoenix’s starter-home neighborhoods into speculative financial assets. The top ten largest nationally traded homebuilders control 70% of the Phoenix housing market. That’s up from 44% two decades ago.
With this much influence over the market, institutional investors have hoarded land in the fifth-largest city and artificially paced production to keep home prices high, the American Economic Liberties Project study found. Wall Street’s hold over Phoenix’s housing market is also likely to only get worse.
Phoenix has become the epicenter of the corporate housing industry’s “built-to-rent” model. Instead of building single-family homes for residents to buy, institutional investors are building neighborhoods made up of rental properties.
Phoenix New Times sat down with Laurel Kilgour, the study’s author and research manager at the American Economic Liberties Project, to chat about Phoenix’s housing market and explore why the city has become a testing ground for housing corporations.
How did Phoenix pop out as an example of where institutional investors are exerting power?
Even though the population has grown, we build much less. Smaller builders, which can be pretty large regional builders as well, were in a much more fragile state by the time the Great Financial Crisis came around.
In Phoenix, about two dozen builders went out of business or were acquired after the great financial crisis. Unlike in previous recessions, you didn’t see the sharp bounce back in construction after the financial crisis. The smaller builders have had trouble financing, so they’re not doing as much. The strategy of large publicly traded builders is dictated by Wall Street imperatives, which aren’t always consistent with building enough starter homes. They have different incentives to kind of hoard land and pace production. In Phoenix, we’re not building as much; we have a big supply shortage.
Then Wall Street came in and took advantage of those conditions starting after the great financial crisis, when they bought up all of these foreclosed homes. Phoenix was one of the areas hit hardest, with many homes in foreclosure. And under the Obama administration, the federal government adopted a policy of, ‘We are going to make it easier to sell off these foreclosed homes in bulk to Wall Street, rather than adjusting mortgages to make sure that people can stay in their homes or giving ordinary people the first chance to buy houses that were foreclosed.’
How did that impact Wall Street’s involvement in Phoenix’s single-family home rental market?
That really kickstarted an entire industry because Wall Street wasn’t really into buying individual single-family homes at that point. One of the biggest single-family rental landlords in the country, a company called Invitation Homes, got its start in 2012 in Phoenix. It started buying up a bunch of foreclosed homes in Phoenix. And then in 2013, Invitation Homes launched Wall Street’s first-ever securitization. It was a new financial asset backed exclusively by single-family rental homes. Wall Street was viewing Arizona and Phoenix as a testing ground for a new asset class. These securitized assets, single-family homes, are backed by the expected rental income that they are going to generate.
Also, Zillow launched its iBuying program in Phoenix. It was supposed to be an algorithmically driven home-flipping program. That didn’t end up working out so well for Zillow. But when they exited, who did they sell it to? They sold it to Invitation Homes, Pretium Partners, I think American Homes for Rent, but basically the big single-family rental landlords. That was several thousand homes when Zillow closed that program, and they were then sold off.
These corporate landlords are known to be more aggressive in evicting people. They are more likely to hike rent more aggressively. Some early research shows they do increase home prices in the neighborhoods around them, making it harder for first-time buyers to buy homes.
These corporate landlords didn’t create the overall supply shortage problem, but they are taking advantage of and exacerbating that situation.
Why has Phoenix been consistently used as an area for big companies to experiment? Why is it so ripe for experimentation?
The economics are very favorable. Arizona has very low property taxes. Carrying costs are low if you want to buy up a bunch of homes and wait for the value to appreciate, even if your plan is to eventually sell them rather than rent them. You can afford, as an investor with a lot of capital, to be patient because the carrying costs of property taxes are very low in the meantime. If things have to sit vacant for a while, you can afford that.
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Arizona has laws that are fairly landlord-friendly rather than tenant-friendly. In other places, it’s easier for tenants where there’s not much upkeep; they can withhold rent until repairs are made. They don’t have the same rights to do that in Arizona as they do elsewhere. Arizona also says that rent control cannot be enacted at the local level. If it were ever enacted, that would require a state law of some sort. That is also more attractive to investors.
Investors looking at Phoenix in 2012, 2013, were seeing that — despite the huge impact of the foreclosures — Phoenix was a promising area because of population growth, job growth and some people moving there to retire. They could see that, in the long term, prices would bounce back, and they would bounce back faster than they might in some other areas.
And that proved to be true. So they made a good bet. The prices recovered to their pre-financial crisis peak around 2006. Those levels were met again around 2019 and have blown way past that in the years since.
How does this consolidation of corporate power impact the average Phoenix resident looking to purchase a home?
If certain properties or entire neighborhoods are dedicated to rentals of single-family homes, then that’s not available for you to buy. That does put upward pressure on prices. The rate of change in Phoenix has worsened faster than in other places, becoming more unaffordable over the decade or so between 2013 and 2024. Phoenix is in the worst half, or the bottom quarter, of the country in terms of how quickly house prices are becoming unaffordable.
There’s a new trend called build-to-rent, where entire divisions of single-family homes are built from the ground up as rentals and never sold. It’s just blocking off these huge sections of land that no one can ever buy as an individual homeowner. Many of these developments are in the best commuting zones. They’re near desirable schools, shopping centers and jobs. Build-to-rent has increased nationally by 134% from 2019 to now. Some early research shows that, like single-family rentals, build-to-rent pushes up home prices in the same neighborhood.
It’s harder for community builders, or even individual families, to get loans to build homes than for corporate entities. Is there a policy solution here? What do you make of that issue, and do you see a way forward?
Our top recommendation is increasing funding to finance home building locally. Revolving loan funds are a very popular measure at the local level. Our other recommendations are to change the economics so people aren’t locking up large swathes of land without building on them. There are tax breaks that you can strip out so that it is less enticing for Wall Street to be focused as much on single-family rentals and give ordinary families a chance to buy them.
There has been some progress at the federal level. The Road to Housing Act was recently passed into law. It doesn’t do anything about the existing stock of single-family rentals, but it does prevent institutional investors from buying up more single-family rental homes in bulk.
Arizona has the Own Something and Be Happy Act, a bill introduced in the past that has stronger limits on institutional investors’ ownership of single-family rental homes. Institutional investors can’t own more than 50 homes across Arizona. (The bill didn’t make it past the House of Representatives)
Another important point is that when these single-family rental homes are sold, nonprofits and ordinary families get first look. During the first 60 days, they can bid on a house before any institutional investors can bid. It gives ordinary people a chance to look at a house before Wall Street can consider buying it.
The conversation in Arizona around housing has been build, build, build. How do you respond to people who say, ‘Let’s not worry about housing reform and accountability measures now. Let’s just build as many houses as we can’?
Building is very important and one of our top priorities. But at the same time, real estate is really something that people look at at the neighborhood level and in their commuting area. It is important to keep that very neighborhood-level perspective in mind.
In build-to-rent, there’s this argument that corporations own apartment buildings; why shouldn’t they own single-family homes? But there is a significant difference in the amount of space they take up. When you’re looking at these very local commuting patterns, build-to-rent very quickly takes up a big share of the market, whereas an apartment building in a dense city area doesn’t.
Build-to-rent developments are located in the outer ring suburbs, in the types of places where you historically would have seen starter homes built for ordinary families to buy. It really is about who is getting this land and when the houses are built on it. Who gets to build wealth through the real estate equity of that land? Is it going to be Wall Street building equity itself and getting to charge all of these rents? Or do families get to build equity as first-time homebuyers?
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