Investors snagged 1 in 5 homes for sale in Greater Boston, worsening housing crisis, report finds
One in five homes sold in Greater Boston from 2004 to 2018 went to private investors — particularly smaller local operators scooping up two-families and triple-deckers in hopes of making a profit on the region’s soaring housing market — driving up the cost of once relatively affordable housing, a new report found.
Investor home purchases have been on a steady rise, accounting for 23 percent of residential sales in 2018, up from 16 percent in 2004, a report released last week by the Metropolitan Area Planning Council found. Investors often bought homes in cash, winning bids over prospective homeowners needing mortgages, and disproportionately driving up rent prices and forcing out tenants in areas such as East Boston with high proportions of low-income families of color, the report found.
“A lot of investors are looking at hot markets and saying, ‘I can get a building from an elderly owner, and because the tenants are sometimes paying below market rent, jack up the rent by an enormous amount, slap on a little paint,’ and all of a sudden, they’re renting to a completely different clientele than has usually lived in that neighborhood,” said Marc Draisen, the council’s executive director. “That’s what often fuels displacement in these communities.”
The council defined private investors as those who used limited liability corporations, purchased more than three residential properties in five years, spent at least $3.45 million over 23 years, or purchased properties with at least four units.
The report revealed that investors play a much bigger role in shaping the region’s housing market than previously known, although Greater Boston has not seen the same level of billion-dollar corporations snatching up cheap single-family homes as other US cities.
Investors, who often either flipped homes for much higher prices within two years or jacked up rents by as much as 70 percent, were particularly active in some lower-income areas and gentrifying neighborhoods, the report said. Parts of East Boston and Lynn, for example, saw more than 40 percent of home sales go to investors.
The report illuminated a dynamic that tenant and neighborhood advocates have been witnessing on the ground for decades.
“The consequences are dire,” said Carolyn Chou, director of Homes for All Massachusetts, a tenant advocacy group. “When people I work with hear their landlord is selling the building, everyone’s stomach drops. Even people with professional jobs. Because they know that pretty soon, they might not have a home anymore.”
There are generally only a few outcomes when a private investor purchases a two- or three-family property, advocates said.
In many cases, an investor will “flip” the property, meaning they put money into some simple repairs, then put the property back on the market within two years for significantly more than the purchase price. Some 9 percent of homes purchased in Greater Boston between 2002 and 2022 were flipped.
In other cases, investors hold onto the property and raise the rents.
Housing has been a hot bed for investment for decades, largely because the nation’s shortage of homes means that properties are likely to steadily increase in value after they’re purchased, particularly in housing-starved urban areas.
Most research into the impact of investor buying has focused on the activity of large-scale institutional buyers, such as Invitation Homes, that have taken to buying up single-family homes or apartment buildings in fast-growing regions such as Atlanta and Phoenix. Oftentimes, those investors will fix up deteriorating properties and rent them out at higher rates, or put them back on the market.
That sort of investor is not nearly as present in Greater Boston as it is in some other areas, according to the report, largely because single-family homes here are so expensive, and because there are relatively few of them to buy.
Instead, the report found, Greater Boston has many more small and midsize investors, people who own between three and five properties, or who purchased between $3.45 million and $10.34 million worth of property in the 23-year period MAPC studied.
Combined, those small and midsize investors made roughly 88,000 purchases in that period, accounting for 64 percent of all investor purchases in the region. (Institutional investors accounted for roughly 25 percent of investor purchases.)
The report found that, overwhelmingly, investors are eyeing two- and three-family homes, the kind of buildings that represent the region’s last remaining “naturally occurring affordable housing.” That deeply concerns affordable housing advocates.
In most cases, two-families and triple-deckers were built decades, sometimes a century, ago. Because of their age, and sometimes their condition, those properties tend to carry cheaper rents and purchase prices. In low-income neighborhoods, areas hit hardest by America’s long history of racist mortgage lending policies and historical disinvestment, these properties tend to be last refuges of affordability in a city and region that is rapidly growing too expensive for people of modest means to stay, housing advocates say.
Those buildings have long been a bastion for Boston’s working and middle classes, who have often purchased small multifamily properties as homes, and rented out the other units for supplemental income or to relatives. But now, the report said, such opportunities are growing increasingly out of reach as investors snap up the properties with cash offers.
“That model of homes and homeownership that the triple-decker represents, which was so important to this region for so long… it’s not evaporating, but people are being out-competed for those things,” said Timothy Reardon, chief of data and research for the state’s new Executive Office of Housing and Livable Communities. “We’ve seen that the effects of that can be devastating.”
In 2018, two-families represented more than 30 percent of investor acquisitions, and three-families nearly 50 percent. Those figures were even higher in low-income neighborhoods and the state’s inner cities, and picked up in the years after the 2008 financial crisis, when home prices dropped and foreclosures were widespread.
Investor activity in the housing market has historically been challenging to document, because most purchasers buy property through one or more LLCs, making it difficult to discern who is behind a transaction. The data took MAPC roughly four years to analyze.
Even more challenging though will be figuring out how to pump the breaks on the trend, said Draisen. A real estate transfer tax could help, he said, because it could discourage speculators from buying and selling homes in quick succession. And it would provide funding for more affordable housing efforts.
The state should also require more transparency around LLCs, he said, because knowing who is behind purchases will make it easier to understand how many buildings private investors are purchasing, and where.
“We need policies that will put a stop to this,” Chou, of of Homes for All Massachusetts, said.
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