Investors are Buying Up Homes. Cincinnati is Pushing Back – The Journal.

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Ryan Knutson: Chasie Robinson lives in Cincinnati. She works as a nurse, and she and her husband used to own a home there. But after the 2008 housing crash, they lost it in foreclosure. Do you ever think about that house that you used to own?

Chasie Robinson: Oh, yeah. When I drive by, I’m like, oh. But it’s one of those things … if I whined about everything that I lost, I would probably be sitting on a curb, just rocking back and forth. So I keep it moving. We’re in a better place now, financially and emotionally.

Ryan Knutson: Chasie still lives in the same neighborhood. She can see her old house out the window, but now she rents. What do you like about your neighborhood?

Chasie Robinson: That it’s close to pretty much everything. And it’s the only place we could find a house big enough for all of us.

Ryan Knutson: All of us? How many people do you live with?

Chasie Robinson: Well, I have my 80 year old mom, all the way to my two month old granddaughter. About 10 of us.

Ryan Knutson: Wow, 10. That’s literally a full house.

Chasie Robinson: Yeah.

Ryan Knutson: Chasie has built up some savings and says she’d like to own a home again, but buying a house in her neighborhood is tough. Prices are high and demand is competitive. And some of that demand has come from big institutional investors who are buying homes and converting them into rentals. But a new gambit by an economic development agency in Cincinnati might give Chasie another chance to be a homeowner.
Welcome to The Journal, our show about money, business, and power. I’m Ryan Knutson. It’s Thursday, January 27th. Coming up on the show, inside an effort to take on big investors in the Cincinnati housing market.
Chasie Robinson isn’t the only one having a hard time buying a house right now. Our colleague Konrad Putzier writes about real estate and says the housing market is difficult for a lot of reasons.

Konrad Putzier: You have demand going through the roof. There is this growing number of millennials that want to become homeowners themselves, that have the money to buy houses and want to buy houses. On the other hand, you just have no supply. There just hasn’t been much housing construction since the 2008 financial crisis for a number of reasons. And then throw in on that, this growing phenomenon of investors coming in.

Ryan Knutson: Over the last decade, publicly traded companies, private equity firms, and smaller investors have all started buying single family homes and renting them out.

Konrad Putzier: You’re seeing almost a fifth of all homes that are sold in the US now are selling to investors, which is way higher than it used to be. So think about it, on any given street, one in five homes is now sold to an investor. And even as late as 2009, it was less than 10%. So essentially the share of investors in the housing market has doubled during that period.

Ryan Knutson: This means there are more houses to rent, but fewer available for people like Chasie to buy. In fact, Chasie rents her house from a private investment company that’s based in California. They’re just one of several firms investing in Cincinnati real estate. We couldn’t reach them for comment.

Konrad Putzier: So these out of town, private equity investment firms have identified Cincinnati as a really appealing market to get into. Houses there are just incredibly cheap to buy compared to what the rent is. So you can actually get a decent return if you buy a house and rent it out, because rents compared to the sales price are relatively high.

Laura Brunner: So really, our awareness of this issue started with an article in the Wall Street Journal.

Ryan Knutson: That’s Laura Brunner, a Cincinnati official who’s been worried about the influx of big out of town investors.

Laura Brunner: It talked about this trend and how Ohio was being particularly targeted because we have low home values and high rents.

Ryan Knutson: Laura runs an organization with, kind of a confusing name.

Laura Brunner: The full name is the Port of Greater Cincinnati Development Authority. We just don’t have a port.

Ryan Knutson: Instead of managing a port, Laura’s organization works to improve property values in Cincinnati and boost home ownership. It normally buys and redevelops land and other properties, and then sells at affordable prices. Some of its money comes from taxpayers, but it gets most of its funding by issuing bonds. After seeing that Wall Street Journal article about investment firms, Laura decided that her organization should do some of its own research.
They found that since 2008, five companies bought more than 4,000 houses in the county where Cincinnati is. Big investors often say they’re expanding the supply of affordable rentals, but home ownership advocates were telling Laura that these out-of-town investors were making it hard for local residents to buy homes. Laura saw that as a big problem, especially for low to middle income buyers.

Laura Brunner: Home ownership is the best way in our country to create wealth. To have a house that appreciates, have your mortgage payment actually be a savings account … partially at least. A savings account that you can borrow against to send your kids to college. So if we take a significant percentage of the homes off the market, that’s a problem.
It’s a bigger problem then, when it’s in these particular neighborhoods. Neighborhoods that are low to moderate income, often black and brown people, and say, you in particular, don’t get the chance to own a home. It’s taking wealth, the wealth creation out of our local economy and putting it somewhere else.

Ryan Knutson: One thing that private investors have said is that a lot of people in America want to just rent homes. They don’t want to buy because maybe they don’t have enough savings or many other reasons. And so by buying single family homes and turning them into rentals, they’re increasing the supply of homes to rent. And when you increase the supply, it can keep the cost of rent lower.

Laura Brunner: Well, once again, I think the other perspective on this is that the rent that they’re paying now is more than the mortgage they would have to pay. Now, granted they have to have the funding for the down payment and they might have to have more of a savings for repairs, but that’s where home ownership training and having a bigger support system is so valuable.

Ryan Knutson: Last year, Laura got a call that she thought could be her opportunity to address the threat she saw from private investment. It was from a real estate firm. They told her that a California based investor was in foreclosure and was looking to offload a bunch of properties. 194 of them were in the Cincinnati area, including Chasie’s house. And the real estate firm was asking if Laura’s organization wanted to bid on them. The Port had bought homes before, but never on this scale.
So when this real estate firm called you up and said, we’ve got these homes for sale in Cincinnati, what did you think?

Laura Brunner: Well, I’m a fast thinking risk taker. And what I said was, heck yes. We’ll figure it out. We’re definitely interested.

Ryan Knutson: Why? Why was your first thought, heck yes?

Laura Brunner: Because we knew from the very beginning that if we didn’t buy them, just another investment group would buy them and keep these houses out of home ownership for the foreseeable future.

Ryan Knutson: But then, 13 other bidders showed up. That’s after the break.
Before Laura got that phone call from the real estate firm that was looking to sell a bunch of houses, she hadn’t been thinking about taking on a project at this scale.

Laura Brunner: It came to me in that moment. But then, obviously, between that moment of saying, heck yes, we’re interested, between then and when we made the bid, we obviously developed a plan.

Ryan Knutson: The plan Laura and her colleagues came up with was to buy the homes, renovate them, and then sell them to Cincinnati residents. Current tenants would get first dibs, and the Port would help connect them to financial counselors and mortgage lenders to try to help them buy. But getting the homes wasn’t going to be easy. Laura was going up against 13 other bidders, including some major institutional investors.
Did anyone say Laura, this is crazy.

Laura Brunner: No. And honestly, our board, on the last day, when best and final bids were due, we had a board meeting that morning. And I told them where we were and said, we’re sticking with the bid we made, we think we’re in good shape. My board said, raise your bid. We don’t want to lose them. This is too impactful of an opportunity for us. We cannot pass it up. So I went back and raised our bid another $500,000 that day.

Ryan Knutson: Laura’s final bid for those 194 homes was $14.5 million. That works out to about $75,000 per house.
So do you remember the moment when you won the bid?

Laura Brunner: Yes….