Study ranks NE among top 10 states for risky housing due to big corporate investors

LINCOLN — A new study ranked Nebraska among the top 10 states in the nation for risky housing conditions related to a heavy influence of corporate investors.

The Private Equity Stakeholder Project, a nonprofit watchdog, released its first state-by-state “risk index” aimed at informing policymakers about problems that can arise from imbalanced investment by big private equity groups.

In its analysis, the group looked at four key areas — jobs, health care, pension and housing — to score private equity risk. Researchers said the private equity business model is built on pooling money from large investors, often to turn a quick profit, which can lead to negative consequences for local communities.

Nebraska’s cumulative score was 42 out of 100, putting it in the medium risk category and among the bottom 15 states for overall threat.

However, when looking only at housing, Nebraska scored 63 — the ninth highest among states.

“It should raise the hairs on the backs of necks,” said Matt Parr, spokesman for the Private Equity Stakeholder Project. 

He added, “That means there is a lot of risk in the housing market in Nebraska, for renters and especially for those wanting to purchase homes.” 

Squeezing out average family

To come up with the housing-only score, the group said it mined single-family home data from CoreLogic and the Pew Charitable Trust from 2018 through 2022.

According to the analysis, medium, large and mega investors during that time frame bought about 10% of Nebraska homes. (They define a medium investor as owning at least 11 houses; mega investors own 1,000 or more.)

More remarkable, the researchers said, was that the share of homes purchased by those investors jumped about 60% during that five-year period.

Heavy buying from corporate interests can be harmful, Parr said, in that deeper pockets and nimble processes allow them to “squeeze out the normal average family from getting into the market.”

Indeed, Omaha Habitat for Humanity had to up its game and come up with a “workaround” to help clients compete for existing for-sale homes, said CEO Amanda Brewer.

Until a few years ago, Habitat mostly stuck to building and renovating houses to sell to low-income families. Then it added a mortgage-ready service that provides guidance and low-interest loans for clients that buy houses on the open market.

The problem, said Brewer, was that clients were not winning bids. She said they were losing to competitors who were able to quickly put down cash offers, and she suspects those were private equity firms.

Brewer said some houses never even make it to the market because investors  have been so aggressive in marketing to potential sellers.

“It was such a problem that we started buying the properties,” she said.

With the help of area banking partners, Brewer said Habitat was able to make its own cash offers on behalf of a client — “a kind of workaround so that residents of our community have a chance.”

Make it a rental

Access to homeownership is a pillar of community strength, Brewer said, as it allows families to build equity in property they can also pass to younger generations. It can create deeper roots and pride in neighborhoods.

Carol Bodeen, director of policy for the Nebraska Housing Developers Association, said corporate landlords have been notorious for turning houses into rental properties and raising rent.

“They’ll put a little money in and make it too expensive for a more affordable housing type of buyer, or make it a rental,” she said.

Nationally, private equity firms today own at least 1.6 million housing units, though the number likely is underestimated because ownership often is obscured, according to a research team led by senior policy coordinator Chris Noble with the Private Equity Stakeholder Project.

The researchers said corporate investment in local housing systems gained momentum after the 2007-08 mortgage crisis, when Wall Street firms snapped up large batches of foreclosed homes.

COVID-19 exacerbated speculative housing investment, as the residential market became a reliable investment option amid overall economic uncertainty.

Noble said more people from across the political spectrum are sounding the alarm over housing affordability and renters rights, and Nebraska is no exception.

Lawmaker steps up

This past legislative session, Omaha State Sen. Justin Wayne proposed a measure to keep businesses and hedge funds without a tie to the state from buying single-family housing in Nebraska.

Sen. Brad von Gillern of Elkhorn balked, saying that as a capitalist, he was fundamentally opposed to the idea and was not convinced the bill was an answer to preserving homeownership.

Legislative Bill 1405 went nowhere, but Wayne said it was a concept the state had to start talking about.

He said he was inspired in part by Gov. Jim Pillen’s idea to prevent foreign adversaries and sanctioned nationals from buying agricultural land in Nebraska.

Wayne also referred to Ohio-based VineBrook Homes as an example of a private company that in 2019 started buying up homes in North Omaha to become one of the state’s largest landlords. Flatwater Free Press has reported on the company’s local buying spree. 

Earlier this month, Midwest Newsroom updated the VineBrook saga. The news outlet noted that tenants in cities such as Omaha, Kansas City and St. Louis complained about unresolved maintenance issues, unfounded evictions and aggressive rent collection tactics.

Now, it said, the company faced new debt pressures and has shifted to selling off some properties.

Noble, the policy director at Private Equity Stakeholder Project, said the goal of the index is to provide a tool for the public, lawmakers and regulators to assess the impact of private equity on states.

Possible ways to address private equity firms in local real estate markets, he said, include rental cost caps and prohibition on evictions for reasons other than specified causes such as nonpayment of rent.