The Impact of Large for Rent Home Builders on the American Dream

 
 

 
 

My Blog on: The Impact of Large for Rent Home Builders on the American Dream 

 
 

Introduction: 

 
 

The American dream of homeownership has been a fundamental aspiration for generations. However, the landscape of the housing market has been changing with the rise of large for-rent home builders like American Homes for Rent. These companies have been capitalizing on tax benefits designed for small investors, which raises concerns about their impact on affordable housing, bidding wars, subcontractors, and the future of the housing market when they decide to sell. This blog post delves into the potential consequences of these practices and explores possible solutions to address the issues. 

 
 

Exploiting Tax Benefits: 

 
 

Large companies like American Homes for Rent have been taking advantage of tax incentives meant to assist small investors, leading to an unfair advantage in the market. This allows them to accumulate extensive real estate portfolios, which can have detrimental effects on the American dream of homeownership, especially for first-time buyers seeking affordable housing. 

 
 

Exploiting tax benefits by large for rent home builders, especially those owning more than 1,000 properties, raises significant concerns about fairness and the impact on the housing market. Here's why it is important to consider addressing these issues: 

 
 

1. Unfair Advantage and Market Dominance: Large-for-rent home builders, with their ability to accumulate vast real estate portfolios, can gain an unfair advantage over smaller investors and developers who may not have the financial resources to compete. This can lead to a concentration of ownership, potentially limiting the diversity of players in the market and reducing healthy competition. 

 
 

2. Impact on First-Time Homebuyers: When large companies take advantage of tax incentives designed to support small investors, they can hinder opportunities for first-time homebuyers to enter the housing market. With limited affordable housing inventory and increased competition from these companies, the American dream of homeownership becomes more elusive for those seeking affordable options. 

 
 

3. Erosion of Affordable Housing Supply: By leveraging tax benefits, large-for-rent home builders might prioritize rental properties over affordable starter homes. This can further reduce the supply of affordable housing options, exacerbating the affordability crisis in some regions of the country. 

 
 

4. Distorted Housing Market Dynamics: The overrepresentation of large-for-rent home builders in the market can distort housing market dynamics, leading to potential imbalances between supply and demand. This could result in inflated property prices and less accessible housing for everyday homebuyers. 

 
 

5. Socioeconomic Impact: A disproportionate concentration of rental properties owned by large corporations might lead to increased rental costs, impacting lower-income families and individuals the most. This could contribute to income inequality and further widen the wealth gap. 

 
 

6. Encouraging Responsible Investing: By reconsidering tax incentives for companies that own over 1,000 properties, the government can promote responsible investing practices. Focusing on supporting smaller investors and community-based initiatives might lead to more balanced and equitable growth in the housing market. 

 
 

7. Fostering Affordable Housing Development: Redirecting tax incentives to support affordable housing development can incentivize companies to invest in projects that address the housing needs of low and middle-income families. This can lead to the creation of more sustainable and inclusive communities. 

 
 

8. Long-Term Housing Stability: A more balanced housing market encouraging small investors and affordable housing initiatives can contribute to long-term housing stability. By diversifying ownership and development, the market becomes more resilient to economic fluctuations and housing crises. 

 
 

In conclusion on why the Tax Benefits should exclude companies with 1,000 properties, addressing the exploitation of tax benefits by large for rent home builders that own over 1,000 properties is essential for promoting a fair and sustainable housing market. Redirecting incentives toward affordable housing development and supporting smaller investors can foster a more inclusive and accessible housing landscape, ensuring that the American dream of homeownership remains attainable for all. 

 
 

The tax-exempt status of large Real Estate Investment Trusts (REITs) and their use of land banking deals raise legitimate concerns about the potential exploitation of tax laws and SEC REIT rules. Here are some reasons why this issue needs attention: 

 
 

1. Unintended Advantage: The tax-exempt status of REITs was initially designed to encourage real estate investment and provide benefits to smaller investors. However, when large companies use this status to their advantage, it creates an unintended advantage for these corporations, allowing them to accumulate extensive real estate portfolios without facing the same tax obligations as smaller investors. 

 
 

2. Skirting SEC REIT Rules: Some large REITs might use complex land banking deals to acquire properties that could potentially violate SEC REIT rules. This could involve acquiring land and holding it for extended periods, beyond the limits set by SEC regulations, without actually developing or utilizing the properties for genuine real estate investment purposes. 

 
 

3. Distorted Market Competition: When large REITs exploit tax exemptions and engage in land banking practices, it can distort the competitive landscape in the real estate market. Smaller investors and developers, who do not have the same resources or access to tax benefits, might find it challenging to compete on a level playing field. 

 
 

4. Impact on Affordable Housing: The concentration of land and real estate holdings by large REITs can affect the availability of properties for affordable housing initiatives. If these companies hoard properties for speculative purposes, it limits the supply of land and properties that could otherwise be utilized for affordable housing development. 

 
 

5. Potential for Market Instability: Large-scale land banking by REITs might contribute to market instability. Holding large amounts of undeveloped land could create an artificial scarcity of available properties, leading to price fluctuations and speculative bubbles in the real estate market. 

 
 

6. Reduced Tax Revenue: Exploiting tax-exempt status might lead to reduced tax revenue for local and federal governments. This could impact public services, infrastructure development, and other essential programs that rely on tax funding. 

 
 

7. Need for Regulatory Oversight: To address these issues, there is a need for regulatory oversight and monitoring of large REITs' activities. Ensuring compliance with SEC rules and reviewing the use of land banking deals can help maintain the integrity of the tax system and prevent abuse of tax exemptions. 

 
 

Conclusion: 

The tax-exempt status and land banking practices of large REITs raise concerns about fairness, market stability, and the impact on affordable housing initiatives. Addressing these issues requires careful consideration of regulatory measures and transparency in the real estate market. By promoting responsible investing and equitable competition, we can foster a healthier housing market that benefits both investors and the broader community. 

 
 

The rise of large for rent home builders in the housing market has indeed contributed to the creation of bidding wars, which can have significant consequences on housing affordability and market dynamics. Let's explore how these builders play a role in intensifying bidding wars: 

 
 

1. Increased Demand: Large for rent home builders have substantial financial resources, allowing them to acquire multiple properties quickly. Their aggressive investment strategies lead to increased demand for properties, particularly in areas where they concentrate their purchases. 

 
 

2. Reduced Housing Inventory: As these builders purchase multiple properties for rental purposes, the supply of available homes for sale decreases. This reduced housing inventory creates a sense of urgency among potential homebuyers to compete for limited available properties, fueling bidding wars. 

 
 

3. Price Inflation: With more potential buyers competing for fewer homes, the demand-supply imbalance drives up property prices. Bidding wars often result in offers surpassing the listing price, leading to inflated property values that can be unaffordable for average Americans, especially first-time homebuyers. 

 
 

4. Impact on Affordability: The intensified bidding wars have a cascading effect on housing affordability. As property prices soar, it becomes increasingly challenging for many individuals and families to enter the housing market or upgrade to larger homes. 

 
 

5. Shift in Housing Market Dynamics: The dominance of large for rent home builders in certain areas can shift the balance of the housing market. The focus on acquiring multiple properties for rental purposes might lead to a lack of investment in owner-occupied homes, affecting the availability of affordable housing options. 

 
 

6. Speculative Behavior: The competitive nature of bidding wars might encourage speculative behavior, where buyers purchase properties with the hope of quick appreciation and future gains. This speculative activity can further drive up property prices, creating volatility in the housing market. 

 
 

7. Emotional and Financial Stress: Bidding wars can be emotionally and financially stressful for potential homebuyers. The pressure to outbid others can lead to hasty decisions or overextending financially, leaving some buyers with significant debt burdens or compromising their financial well-being. 

 
 

8. Impact on Local Communities: As property prices rise due to bidding wars, long-term residents might face challenges in affording their homes or dealing with property tax increases. This can impact community cohesion and stability. 

 
 

9. Imbalance in Real Estate Investment: The focus of large for rent home builders on acquiring properties for rental purposes might result in an imbalance between rental and homeownership opportunities. This imbalance can affect the overall diversity and vibrancy of communities. 

 
 

In conclusion, the presence of large for rent home builders in the housing market has intensified bidding wars, leading to inflated property prices and exacerbating the affordability crisis for average Americans. Addressing this issue requires a comprehensive approach, including measures to increase housing supply, promote affordable housing initiatives, and ensure a fair and transparent housing market that benefits both buyers and renters.  

 
 

 
 

 
 

My thoughts on how this may have been exacerbated by COVID 19  

 
 

 
 

 
 

1. Stimulus-Driven Demand: The COVID-19 pandemic led to unprecedented stimulus measures aimed at bolstering the economy and supporting individuals and businesses. As a result, there might have been an increase in demand for housing, driven partly by the availability of stimulus funds, which could have contributed to bidding wars and price inflation. 

 
 

2. Short-Term Effects: The influx of stimulus money might have provided a temporary boost to the housing market, leading to a surge in demand and elevated property prices. However, it is essential to consider the potential for a correction once the effects of the stimulus measures subside. 

 
 

3. Long-Term Implications: The combination of large for rent home builders intensifying bidding wars and the stimulus-driven demand could have long-term implications on the housing market. The affordability crisis may persist, and there might be challenges in maintaining a sustainable and balanced housing market. 

 
 

4. Supply and Demand Dynamics: Addressing the housing affordability crisis requires a focus on the fundamental supply and demand dynamics in the market. Measures to increase housing supply through responsible development, encouraging smaller investors, and supporting affordable housing initiatives are crucial in stabilizing the market. 

 
 

5. Fair and Transparent Market: A fair and transparent housing market is essential to ensure that all participants, including buyers, sellers, and renters, have equal access to opportunities. Policies promoting transparency and regulations that prevent market manipulation are vital in creating a level playing field. 

 
 

6. Long-Term Solutions: To counteract the short-term effects of stimulus-driven demand and address the affordability crisis, policymakers should focus on sustainable, long-term solutions. This might involve investments in affordable housing projects, incentives for developers focusing on affordable options, and policies that promote equitable homeownership opportunities. 

 
 

7. Monitoring and Assessment: As the housing market navigates through the post-pandemic recovery, continuous monitoring and assessment of market trends and affordability are crucial. This will allow policymakers to make data-driven decisions and adjust strategies accordingly. 

 
 

In conclusion, the presence of large for rent home builders, coupled with the impact of COVID-19 stimulus measures, could have intensified bidding wars and contributed to inflated property prices, exacerbating the affordability crisis for average Americans. A comprehensive approach that considers both short-term effects and long-term sustainability is necessary to promote a fair and transparent housing market that benefits everyone. Addressing housing supply and demand dynamics and fostering affordable housing initiatives will play a crucial role in stabilizing the market and ensuring housing affordability for the future. 

 
 

Impact on Subcontractors: 

 
 

 
 

Let us delve deeper into the impact of large for rent home builders on subcontractors and how it has contributed to the ongoing labor shortage in the construction industry. 

 
 

1. Diverting Labor from Affordable Housing: 

The surge in investment by for-rent home builders in the housing market has created a substantial demand for construction services. As a result, many skilled subcontractors, who would otherwise be engaged in building affordable starter homes or working on community-based housing projects, have been drawn to these large-scale developments. 

 
 

2. Skewing Priorities: 

With large for rent home builders offering attractive contracts and stable work, subcontractors may prioritize these opportunities over smaller affordable housing projects that might have less financial security. This shift in focus further exacerbates the labor shortage in the affordable housing segment, making it challenging to address the needs of low-income families and first-time homebuyers. 

 
 

3. Competition and Wage Inflation: 

As subcontractors gravitate towards the for-rent housing industry, the demand for their services intensifies, leading to increased competition among builders. This competition, in turn, drives up wages, making it more costly for affordable housing developers to secure labor and complete their projects within budget. 

 
 

4. Skill Shortage in Affordable Housing Projects: 

Skilled laborers who specialize in affordable housing construction might be lured by the prospect of working on larger and more lucrative developments offered by for- rent home builders. Consequently, there is a risk of losing experienced personnel in the affordable housing sector, which could impact the quality and pace of construction in this segment. 

 
 

5. Disparity in Resources: 

Large for rent home builders often have access to more substantial financial resources, allowing them to offer higher wages and better benefits to subcontractors. Smaller affordable housing developers might struggle to compete, leading to a further concentration of skilled labor in the for-rent housing industry. 

 
 

6. Long-term Consequences: 

The labor shortage in the construction industry, exacerbated by the diversion of labor to the for-rent housing sector, can have long-term consequences for affordable housing availability and quality. As projects face delays or are understaffed, the housing crisis could persist, making it even more difficult for vulnerable populations to find suitable and affordable homes. 

 
 

Solution: 

To address the impact on subcontractors and the labor shortage in the construction industry, a comprehensive approach is necessary. Government and local authorities can implement policies that prioritize affordable housing projects, providing incentives and support to attract skilled laborers. Additionally, increasing investments in vocational training and apprenticeship programs can help develop a new generation of construction workers focused on affordable housing initiatives. Moreover, fostering collaboration between large for rent home builders and smaller developers could lead to joint projects that address both market demands and the needs of affordable housing. By taking these steps, we can work towards a more balanced housing market that caters to various segments of society while alleviating the strain on subcontractors and the construction labor force. 

I'm a fan of the program initiated by the Utah chapter of the Associated General Contractors (AGC) association! Let us delve deeper into the solutions it offers and discuss the significance of such initiatives in addressing the labor shortage in the construction industry and promoting career paths for young individuals. 

 
 

Before discovering my passion for the Real Estate and Development industry, I had never been certain about my career path. I started my professional journey in 2006 as a Business Production Analyst for 8 years and later spent 8 years as a Purchasing Agent in the Construction industry. However, it was not until I became a realtor that I found true meaning in my career. The opportunity to help others find their dream homes brings me immense happiness. 

 
 

Having experienced uncertainty in my career journey, I understand the importance of programs that guide young people towards a clear career path from an early age. Such initiatives are invaluable for fostering future talents and creating opportunities for the next generation. 

 
 

1. Vocational Training and Apprenticeship Programs: 

The program offered by the Utah AGC chapter is a prime example of the positive impact that vocational training and apprenticeship programs can have. By introducing young individuals to the construction industry at an early age, they can develop essential skills and gain hands-on experience, paving the way for a fulfilling and rewarding career path. 

 
 

2. Filling the Labor Gap: 

As the construction industry faces a labor shortage, initiatives like this trading facility can play a crucial role in bridging the gap. By providing a steady stream of trained and skilled workers, the industry can meet the demands of various construction projects, including affordable housing initiatives. 

 
 

3. Diversifying the Workforce: 

Such programs are instrumental in promoting diversity within the construction workforce. Encouraging individuals from all backgrounds, including women and minorities, to explore careers in construction ensures a more inclusive and dynamic industry that benefits from a wide range of perspectives and ideas. 

 
 

4. Encouraging Long-Term Commitment: 

Apprenticeship programs often lead to long-term commitment and loyalty among workers. When individuals receive training and support early on in their careers, they are more likely to feel invested in the industry and remain dedicated to their chosen profession. 

 
 

5. Supporting Local Communities: 

Initiatives like the one started by the Utah AGC chapter demonstrate a commitment to supporting local communities. By providing valuable career opportunities to young individuals, they contribute to the growth and prosperity of the region while addressing the affordable housing challenge. 

 
 

6. Collaboration with Companies: 

Public-private partnerships and collaboration between industry associations and construction companies are essential to the success of such programs. When companies actively participate and invest in these initiatives, they strengthen the impact and reach of the training facilities. 

 
 

7. Emphasizing Technological Advancements: 

Modern construction practices heavily rely on technology and innovation. Incorporating technological training within these programs ensures that the new generation of construction workers is equipped with the latest skills and knowledge required in today's industry. 

 
 

8. Continuous Learning and Upgrading: 

A comprehensive program should not only focus on entry-level training but also offer opportunities for continuous learning and upgrading of skills. Ongoing professional development ensures that workers remain adaptable and competent in the face of evolving construction practices. 

 
 

Conclusion: 

Initiatives like the program at the Utah chapter of the American General Contractors association play a crucial role in addressing the labor shortage in the construction industry while promoting career paths in construction for young individuals. By emphasizing vocational training, apprenticeship programs, and collaboration with local companies, these initiatives contribute to a stronger and more diverse construction workforce. Additionally, they support the development of affordable housing and bolster local communities, making them a vital component of building a sustainable and thriving housing market. 

 
 

 
 

CONCLUSION OF THIS BLOG  

 
 

Conclusion: 

 
 

The unchecked growth of large for rent home builders, particularly those owning over 1,000 properties, poses significant challenges to the US housing market and economy. These companies have exploited tax benefits, intensified bidding wars, and engaged in land banking deals, creating a distorted and unsustainable housing landscape. To safeguard the American dream of homeownership and promote a fair and transparent housing market, it is crucial that these companies be subject to better regulation and oversight. 

 
 

First and foremost, tax incentives meant to support small investors should not be misused by large corporations. A comprehensive review of tax benefits and regulations can help ensure that these incentives genuinely benefit the intended recipients, rather than enabling large companies to gain an unfair advantage. 

 
 

Secondly, intensified bidding wars driven by large for-rent home builders lead to inflated property prices, making homeownership increasingly unattainable for average Americans. Addressing this issue requires promoting affordable housing initiatives, encouraging smaller investors, and fostering a more diverse housing market. 

 
 

Moreover, using land banking deals to circumvent compliance laws and operate as REITs demands immediate scrutiny. Regulatory authorities must closely monitor such practices to ensure that these companies comply with SEC REIT rules and maintain transparency in their operations. 

 
 

Lastly, encouraging responsible and equitable development is essential to create a housing market that benefits everyone. Policymakers should consider measures that prioritize affordable housing and support community-based initiatives, empowering individuals and smaller developers to play a more substantial role in addressing the affordable housing crisis. 

 
 

By implementing comprehensive regulatory measures, ensuring transparency, and promoting sustainable development, we can curtail the negative impact of large-for-rent home builders and foster a housing market that works for the betterment of all Americans. As we strive to achieve a more balanced and inclusive housing landscape, we can uphold the values of the American dream, ensuring that homeownership remains an achievable aspiration for future generations. 

 
 

 
 

 
 

 
 

 
 

 
 

This blog is my own thoughts and does not represent that of the Brokerage I work for.