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

• In Event: Housing as an Asset

Abstract

Contemporary media accounts suggest that private investing in single family homes has grown precipitously over the past two decades, raising concerns that speculators are elevating housing costs for consumers, exploiting vulnerable homeowners, and gentrifying neighborhoods. However, relatively little is understood about how investors make decisions that subsequently influence housing affordability, supply and quality of housing, or neighborhood character, particularly in racially segregated neighborhoods. I use interview data from 63 real estate investors who purchased single-family homes in Charlotte, Durham, and Raleigh, NC to investigate how investors make decisions about purchasing housing in historically Black neighborhoods. I also analyzed 519,448 property transactions to describe the scale, market-share, and characteristics of properties purchased by investors in these cities. Interviews reveal that investors deal in transactions precipitated by distress—whether it be material distress of the housing structure or personal distress on the behalf of the owner. Investors evaluate distress and place a value on it based on whether it is specific to a homeowner’s economic state, the structure needs preservation, or the land is primed for transformation. Quantitative analyses show that growth in investing has been concentrated in neighborhoods with the highest proportion of Black residents, and within these neighborhoods, investors are more likely to purchase foreclosed, older, and low-value homes. These findings challenge the commonplace notion that investors are simply speculators, showing instead how their role in the marketplace as mediators and suppliers influence spatial inequality, neighborhood change, and housing affordability.

Author

• Warren Lowell, Vanderbilt University