Cuyahoga County overrun by out-of-town property owners, leaving advocates worried

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CLEVELAND, Ohio — Outside companies over the past two decades have ramped up how many houses they buy in Cuyahoga County annually, to the point where nearly half of the home purchases made on Cleveland’s East Side in 2020 were not by an individual, according to a new report.

The report, put together by a group of advocates called the Vacant and Abandoned Property Action Council and released Sunday, shows that the percentage of homes that outside companies bought in the county each year grew from 7.17% in 2004 to 21.1% in 2020.

(You can read the report here or at the bottom of this story.)

The findings are not necessarily anything new to housing advocates and community development officers. They have talked about investors gobbling up properties at higher rates than in the past. But the findings do lay out in a more concrete way the extent of the trend, which many homeowners likely have encountered through texts, phone calls, mailers and flyers that advertise selling homes for cash.

The fear, according to housing advocates, is that those new owners often do not have local roots and therefore do not maintain their properties. Concerns range from making unpermitted changes to treating tenants poorly. Advocates believe the outside owners contribute to a spate of problems in some of the poorest, majority-Black areas of Cleveland.

There are good outside business owners, but the bad ones make everyone look worse, according to the council.

“They shouldn’t be calling it bad players and investors,” said Jayme Lucas-Bauer, neighborhood development project manager for the Old Brooklyn Community Development Corp. “They’re just extracting. They’re taking everything they can get out of the house and walking away.

“Calling them investors is a misnomer.”

The report lays out a series of steps recommended to keep problems associated with outside owners in check. Chief among them is aggressively enforcing of Cleveland’s building code.

Mayor Justin Bibb has hired a Building and Housing Department director who is well known as a housing advocate. She is also a member of the council.

But even enforcement has proven problematic, housing officials said, as many properties are associated with a web of companies and business names that can obscure the person behind them.

The East Side

The report is based on sales records for one- to three family-homes from the county’s Fiscal Office and property data compiled by Case Western Reserve University’s Northeast Ohio Community and Neighborhood Data for Organizing system. It largely represents the work of Timothy Kobie, a business process analyst for Cleveland’s Building and Housing Department and co-chair of the council’s investor working group.

The numbers do have some anomalies. For example, it does not account for houses owned by a company where the person behind the company also lives there. They also do not have numbers that show the overall percentage of homes currently owned by outside companies.

But the report shows that the biggest increases in sales to outside companies were in majority-Black areas on Cleveland’s East Side, according to the study. Many of these neighborhoods have either yet to or are just now seeing home values reach the levels they were at before the housing crisis in the late 2000s.

The percentage of homes bought each year by companies grew by nearly 30 points in that half of town from 2004 to 2020, when they made up nearly 46% of the purchases, according to the report. That year, the numbers show that outside companies bought more homes on the East Side than individuals.

The report also says outside companies often bought homes at a discount, as they were willing to pay cash with no contingencies.

Other segments of the city and county also saw increases, though not as drastic, but the purchases have had a big impact. Sally Martin, Cleveland’s building and housing director, testified at a U.S. Senate Banking, Housing and Urban Affairs Committee hearing last month that the majority of the 1,600 rental units in South Euclid, where she previously worked, were owned by people and companies out of state.

Advocates have told stories of local buyers who may want to purchase a house with a mortgage only to get undercut by the promise of another cash deal. That means more renters and fewer opportunities for people to buy their own homes and build equity, according to the council.

“… the findings in this paper suggest the need for immediate changes to stabilize neighborhoods and to preserve the homeownership opportunities that provide the foundation for wealth building and financial stability,” the report says.

‘Social justice problem’

Lucas-Bauer, who conducts similar research in the Old Brooklyn neighborhood, said she has seen similar trends there too. Outside companies own up to 70% of homes in lower-income areas of the neighborhood with a high percentage of residents of color, she said.

It’s “a real social justice problem,” Lucas-Bauer said.

The report also says that the number of permits pulled for renovations or repairs to East Side homes do not line up with the number of homes bought. That could mean that new owners made a “calculated, but risky, assumption” that they could renovate without a permit and move in renters without complying with local and state building and housing laws, the report states.

Often, the council says, those actions are in pursuit of making as much money as possible on property without taking note of significant problems. Rental prices in Cleveland did not drop after the housing crisis, and the council avers that the outside companies can pay low purchase prices and collect more from tenants each month.

Aware but surprising

Overall, the report gives a more complete picture than what was previously known.

“I was totally aware of the uptick but to see the actual statistics was surprising,” said Ayonna Blue Donald, vice president and Ohio market leader for the nonprofit Enterprise Community Partners. She served as Cleveland’s building and housing director between 2017 and last year.

It also shows that the county’s market is not the same as ones in other parts of the country. Advocates nationwide have focused on large corporations buying hundreds or thousands of properties in a single area, as a sort of bet on the housing market.

But the council members and others did not see many companies buying lots of homes here. Instead, companies bought one, a few or a few dozen homes, and the report does not single out any one company as problematic.

That does not alleviate concerns, though.

Martin said groups of different investors often work with the same property manager in the county and that the property managers can become overwhelmed as the number of homes they oversee grows. She said she saw this in South Euclid, where many homes had overseas owners.

“As the number grew and grew, what would sometimes occur is that they would start to slack off on their maintenance. They would get in over their head, in a way,” she said.

Possible solutions

The report gives several recommendations the council said could help ensure that outside companies maintain their properties and follow the law. Some include pushes it has made for years, including legislation that bars landlords from refusing to accept public housing vouchers.

But one of the biggest recommendations for Cleveland is ensuring the Building and Housing Department gets more money to inspect and address problematic properties.

It also said local and state laws should require greater more disclosures for who is behind a company property owner, so it is easier for housing officials and prosecutors to pursue people for blight.

But housing officials and local prosecutors must also be more aggressive in going after problematic property owners, the report says. The number of building and housing law violation cases that Cleveland prosecutors brought in 2020 and 2021 combined were lower than the number pursued in 2019. Blue Donald attributed this in part to the coronavirus pandemic.

Bringing criminal cases for code violations can present its own set of issues, especially if an owner lives out of state, according to the report. It recommends also filing civil cases against problem owners.

Martin said code enforcement is a “huge priority” of the new administration.

Donald noted that there are good people behind many of the outside companies, ones that follow the law. Martin acknowledged that but said that sometimes the bad outweighs the good.

“We’re seeing investors without the right intentions,” she said. “If it’s a nonprofit investor or it’s a reputable person, … we need those people. We just don’t need the ones that are ruining the neighborhoods.”

Cleveland.com and…