Dealing in Distress: How Investors Find Value in Ailing Homes and Influence Housing Affordability

• In Event: Dilemmas of Development: Challenges to Achieving Affordability Among Housing Suppliers and Local Governments

Abstract

Changes in ownership, maintenance, and rehabilitation of housing infrastructure matter a great deal for how neighborhoods are perceived, selected, and organized (Sampson and Raudenbush 2004). On the one hand, investors who allow properties to fall into disrepair likely reinforce the concentration of crime and disadvantage in racially segregated neighborhoods (Gomory and Desmond 2023). Conversely, real estate investors and developers who work in concert to redevelop vacant or abandoned housing stock may serve to reverse narratives and social contexts of violence and danger (Branas et al. 2018; Garboden and Jang-Trettien 2020) or to influence economic growth in ways that reduce access to lower-income residents (Boston 2021). What social factors determine whether investors leave these properties to decay, engage in preservation, or reimagine property transformation? In this article, I shed empirical and theoretical light on real estate investing, with important implications for our sociological understanding of racial-ethnic segregation, neighborhood change, and spatial inequality. Empirically, I combine quantitative analysis of 586,435 property transactions across three cities in North Carolina—Charlotte, Durham, and Raleigh—between 2010-2022 with qualitative analysis of 63 interviews with real estate investors recruited from these same property transaction data in an embedded sampling framework (Small 2011). Quantitatively, I examine whether growth in single-family residential investing has been concentrated among neighborhoods with the highest concentration of Black residents. I find that, in growing urban markets where potential financial yields outweigh market risks, local investors evaluate distress as a signal of financial opportunity. As such, investors are more likely to purchase older, foreclosed, and lower-value homes than occupant buyers or even large, institutional investors. Qualitative analyses reveal that dealing in distress is most common among local investors because it is complicated, relational work that requires close proximity and diligent contact with sellers and properties. Furthermore, dealing with distress engages a complex moral calculus that informs both the prices investors compensate owners for their homes and how investors decide what to do with the property once they own it. The article contributes significant updates to social theories of valuation, racialization, and urban dynamics, suggesting that macro conditions of regional growth undermine processes of racialized, urban stigmatization.

Author

• Warren Robert Lowell, Vanderbilt University
  Presenting Author