Do Investors Drive Up Home Prices?

Question

Do buy-and-hold real estate investors drive up home prices?

Does the average Joe have to pay more for his home because greedy real estate investors buy up all the houses?

I'm being somewhat tongue-in-cheek here, but is this a fair moral question? Can real estate investing have a negative impact on society over time?

Dean Letfus · Answer

Interesting question that is asked around the world. I invest in the USA but am a New Zealander. Currently in NZ investors have been blamed for price inflation so much that the REserve Bank has introduced laws to make it harder and harder for investors to buy so certainly they think investors drive prices. I have been mostly investing in Memphis over 6 years and homeowners pay far more than investors will for homes in Memphis so I don't think they drive values there.  The size of the market and the percentage of purchases by investors would determine the impact in your city?

Alex Craig · Answer

@Chris T. I believe said it best.  Who else would buy a very distressed house. We have neighbors come thank us all the time for turning the worst looking home into the best looking home. The neighbors may not like their taxes going up for the increase in value, but $100 to $200 a year is no big deal to get an increase in value and make it easier to sell when that time comes.  City officials should be thanking us too, especially in a heavy investor owned market like Memphis.

Charity Woods · Answer

I certainly hope so, at least that is the goal when I (and most of my colleagues) enter a transitional neighborhood and start flipping. This is a huge asset for the community. It is investors who turn around dilapidated and "rough" neighborhoods. This does wonderful things for the community. The people who are already living there get to enjoy the added value of their own home but also the added security of a community of with quality homes and owner occupants.

The lower percentage of vacant and abandoned homes drives down crime as there are less places for those with ill intentions to congregate unseen by law enforcement.  This was actually a topic that was presented and backed by a police chief in a community here in VA where a group of investors wanted to facilitate a deal with the city to acquire abandoned city-owned properties.  I had the opportunity to be privy to and a part of that project.

Also, I do want to point out that many REO's have a period where  they only allow offers from end users (the person to live there).

Ultimately, better housing options raises the values for the homeowners, provides jobs, increases general safety,  increases tax revenue to the municipality hence making the quality of life better for all persons in the community.

I hope that was helpful.

Charity

Chris T. · Answer

@Geoff Bishop

Yes, they do.

However, in the middle to rising real estate prices, the average home owner also gains the equity, and can in turn sell their house for more, or get lines of credit. Which in turn creates this wealth effect.

Besides, who else is able to fix up dilapidated houses in neighborhoods, so that it doesn't drag down the prices of other home owners?

And when investors buy and sell properties,

RE attorney make money

Title companies make money

Contractors make money.

Cities/towns make money.

Hardware stores make money, which in turn manufacturers make money.

The list goes on.

Michaela G. · Answer

Well, I think a lot of people, who complain about gentrification and higher values and taxes forget that before investors came into the are, there were prostitutes and drug dealers on every corner and tons of break-ins.

They don't realize that they want to have their cake and eat it, too. You can either have a dangerous, run-down area with low values or you can a nice gentrified area and high value,

Anthony Gayden · Answer

@Geoff Bishop

I have seen this argument a lot. It usually is in one of the more expensive housing markets in the coastal areas. Their logic is that real estate investors buy up property and make it unaffordable for the average people who want to live in an area.

Oddly enough I have seen this argument here in parts of Omaha, which seems laughable considering there is a huge supply of housing here priced under $100,000.

The argument really goes back to the fear of gentrification. The truth of the matter is that certain cities, and certain neighborhoods inside of any city, are more expensive for a reason. They are popular and people want to live there.

The suggestion is that we should somehow be able to prevent an area from being popular and therefore never change from the current demographics. That just is not possible. Things will change either for the better or for the worse. I choose change for the better.

Do Investors Drive Up Home Prices?

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