She said some of the area’s biggest homebuyers in the past two years, including Blackstone Group LP, American Homes 4 Rent and Silver Bay Realty Trust Corp., repeatedly told her they had nothing available for tenants who use subsidies under the federal Section 8 assistance plan. Last week, she finally got a positive response from Blackstone’s Invitation Homes unit, which said it would accept applications from her renters.
“It’s a really uphill battle dealing with these investors,” Moore-Newsome said. “You already have to deal with some of the issues with owners not wanting to take Section 8 in nicer areas. Now you have these big companies come into their neighborhoods and they say we’re not renting to you either.”
Private-equity firms, hedge funds and real estate investment trusts have bought more than 100,000 U.S. homes, becoming dominant single-family landlords in markets hardest-hit by the housing crash such as Atlanta. As the companies seek thousands of tenants to fill newly renovated properties, their decision whether to lease to low-income Americans with Section 8 vouchers stands to affect both their profitability and poor residents who have been longtime renters.
Blackstone, the largest company in the fledgling industry after spending more than $5 billion to buy 32,000 U.S. homes, inherited at least 200 Section 8 tenants when it bought a portfolio of Atlanta-area houses in April for about $100 million. That brought the amount of homes occupied by voucher holders to less than 1% of its portfolio, the company said at the time.
Invitation Homes, which operates the business, leases to 81 of the almost 17,000 families with vouchers in Atlanta and neighboring DeKalb and Cobb counties, according to data from the three largest Atlanta-area housing authorities.
“Invitation Homes has a significant number of Section 8 tenants and continues to rent to new Section 8 tenants,” Christine Anderson, a spokeswoman for New York-based Blackstone, said in a statement.
Some institutional landlords, including Waypoint Homes Realty Trust Inc. and Sylvan Road Capital LLC, consider voucher holders a reliable client base because they have a low turnover rate and the government pays most of their rent on a timely basis. Other investors that are building home-rental companies may not want to take on the red tape, stigma of renting to poorer tenants and the potential extra costs, said Christopher Thornberg, principal at research firm Beacon Economics LLC in Los Angeles. They also don’t want to leave their homes vacant for long, he said.
“As the markets become more saturated with rentals, you may find these guys going to a Section 8 model if they don’t decide to sell, simply because they don’t want these houses sitting empty,” Thornberg said.
Investors are buying houses for the potential value appreciation as much as the rental cash flow, and may be reluctant to commit to Section 8 tenants because those leases come with long-term constraints that reduce the ability to sell quickly, according to Raphael Bostic, assistant secretary for policy development and research at the U.S. Department of Housing and Urban Development from 2009 to 2012.
“These guys are not really rental people,” said Bostic, a professor of public policy at the University of Southern California. “They’re transaction oriented.”
Landlord participation in the $18.9 billion HUD program is voluntary, as long as there’s no discrimination against Section 8 tenants based on their race or other protected status. The vouchers assist low-income families, the elderly, and disabled afford housing in the private market, paying landlords at or close to market rates, with tenants contributing 30% to 40% of adjusted gross income for rent and utilities.
Section 8 voucher holders occupy about 5% of the country’s 40 million rental residences, almost double the number in public-housing projects units.
Some single-family rental businesses, such as American Home, avoid purchasing properties in areas where many renters have housing vouchers, according to chief executive Aaron Edelheit.
“We steer clear of dangerous neighborhoods,” said Edelheit, whose Atlanta-based company owns about 2,500 rentals in the Southeast. “Our experience in the past has been Section 8 involves lower-quality neighborhoods, higher crime, higher vandalism, higher delinquency and problems.”
Blackstone, Silver Bay, Thomas Barrack Jr.’s Colony Capital LLC and self-storage billionaire Wayne Hughes’s American Homes 4 Rent started buying residential properties en masse in the past two years in cities including Phoenix, Las Vegas, and Atlanta. They’ve been seeking to take advantage of U.S. prices that fell as much as 35% from the 2006 peak and growing rental demand from some of the more than 7 million Americans that lost their houses to foreclosure.
The U.S. homeownership rate fell to 65% this year, its lowest level since 1995, according to Census Bureau data, as fewer people were able to qualify for a mortgage.
Institutional investors bought 24% of homes sold in the Atlanta region in the first half of this year, the most of any metro area, and up from 12% a year earlier, according to RealtyTrac, an Irvine, Calif.-based data firm.
The buying spree has sent prices soaring and rents leveling off. U.S. home asking prices jumped 11% in July from a year earlier compared with a 3.9% increase in rents, according to San Francisco-based Trulia Inc. In Atlanta, asking prices rose 19%, while rents climbed 2%, the real estate information website reported.
With a glut of properties to fill, investors that shun some of the 2.2 million Americans with federal vouchers in certain regions risk higher vacancy rates and lower yields, according to Jeff Pintar, CEO of Pintar Investment Co., which has invested more than $1.5 billion in single-family properties.
“If you’re an investor in the markets that have Section 8 housing as a predominant portion of the community and you’re not accepting vouchers, you’ll have a bigger difficulty getting that property leased,” said Pintar, who manages more than 2,500 homes in Southern California, Las Vegas and Atlanta, with about 15% occupied by Section 8 tenants.