In The Rent is too Damn High, reviewed by Andrew here, Yglesias argues that single-family homes are typically owned, not rented, because the costs of managing the property make it inefficient to do so. And indeed, it’s cheaper to be a landlord for a multi-family building, since much of the infrastructure and common space is shared by multiple tenants.
Nonetheless, the wave of foreclosures in America over the last few years has led to a wave of investment companies scooping up distressed homes and turning them into rental properties:
With home prices down more than a third from their peak and the market swamped with foreclosures, large investors are salivating at the opportunity to buy perhaps thousands of homes at deep discounts and fill them with tenants. Nobody has ever tried this on such a large scale, and critics worry these new investors could face big challenges managing large portfolios of dispersed rental houses. Typically, landlords tend to be individuals or small firms that own just a handful of homes.
It’s possible that single-family housing has gotten so cheap – and other investment opportunities have gotten so scarce – that this new wave of investors will actually make a profit. It’s also possible that advances in technology, like the ability to remotely monitor houses or dispatch plumbers, have fundamentally changed the economics of landlording.
More interesting, though, is the question of how this new industry will make its mark on suburbia. Defenders of the home mortgage tax deduction often claim that homeowners are better stewards of their property and more invested in their community than renters. But surely large-scale landlords managing an investment portfolio have interests as well, and unlike single-family homeowners, they’ll be able to dedicate significant resources to lobbying.
Unlike suburban developers, who close the sale and are gone, suburban landlords will need to make money from their neighborhoods over time. They’ll also need to attract a different clientele than the typical urban renter, probably a family (multi-generational?) that can fill a 2600 sq ft house. Will they advocate for more density in the ‘burbs, so as to lower maintenance costs? Or perhaps less density, so as to keep rents high? More parks? Better schools? More highways? If this new business model proves successful (and that’s a big if) it could fundamentally change the landscape (both political and actual) of suburban America.