Real estate trusts pay out big home dividends as builders bemoan ‘housing recession’

Dividends paid out on single-family homes owned by real estate investment companies have jumped more than 44 percent since last year, showing how commercial investors are taking advantage of a hot housing market that’s pricing out middle-income and first-time homebuyers.

Real estate investment trusts (REITs) paid out $212 million in dividends in the second quarter of this year on single-family homes, up 44.2 percent from $147 million last year, according to a report released Monday by the National Association of Real Estate Investment Trusts trade group. 

Dividends paid out on the residential sector as a whole were up almost 10 percent on the year, while dividends on mortgage-backed REITs increased more than 15 percent.

aThe payouts come as the U.S. faces what many lawmakers are describing as a national housing crisis, driven by skyrocketing home prices, rising mortgage rates and a dearth of new constructions in the wake of the coronavirus pandemic.

The median price of a house sold in the U.S. was up 15 percent to $440,300 in the second quarter of 2022 from $382,600 in the same period last year, according to the Federal Reserve Bank of St. Louis. Home prices are up more than 33 percent since just before the pandemic, and the 30-year fixed mortgage rate now stands at 5.22 percent, down from a June high of 5.81 percent.

Despite the premium prices and shortage of units, contractors and construction companies are hesitant to start building, citing apprehension on the part of consumers and an environment of rising interest rates.

National Association of Home Builders (NAHB) economist Robert Dietz went so far as to label the current situation a “housing recession.”

“Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession,” he said Monday in a statement attached to a survey that found builder confidence had declined for the eighth consecutive month. “The total volume of single-family starts will post a decline in 2022, the first such decrease since 2011.”

NAHB Chairman Jerry Konter said that “ongoing growth in construction costs and high mortgage rates continue to weaken market sentiment for single-family home builders.”

In a normally functioning market, higher prices should lead to a greater number of market participants, which should increase supply and eventually bring down the price for consumers.

But this is proving not to be true in the current housing market, and large-scale commercial investment in the single-family rental sector, which began in earnest after the 2008 housing crisis, may be partly to blame.

“In the decade since the emergence of [institutional single-family rentals], we have learned that institutional investor purchases crowd out homeownership and reduce housing affordability,” Elora Raymond, an urban planner at Georgia Tech, told the House Ways and Means Committee in June.

An April research paper from the St. Louis Federal Reserve Bank also found that housing became less affordable, especially for poorer people, when investors took over, echoing a 2018 report published by the Philadelphia Fed that found much the same thing.

“Institutional investors, because of their deep pockets and easy access to mortgage finance, can easily out-compete ordinary families looking to buy a home,” lead author Lauren Lambie-Hanson wrote. “When investor purchases raise local house prices, it benefits older and richer people because they are more likely to own their homes, while younger and poorer people get priced out.”

The trend of increased investor ownership of the housing market, which is already 10 percent greater than it was before the pandemic, according to data from real estate market research company CoreLogic, looks set to continue.

On Monday, billionaire Silicon Valley venture capitalist Marc Andreessen — famous for early investments in the likes of Facebook and Airbnb — announced an investment in a new business by the founder of the shared office space company WeWork, notable for a botched initial public offering and subsequent buyout by backer SoftBank.

Andreessen acknowledged that the national “housing crisis” was behind his decision to invest.

“Shelter is one of our most basic needs,” he wrote on his company’s website. “In a world where limited access to home ownership continues to be a driving force behind inequality and anxiety, giving renters a sense of security, community, and genuine ownership has transformative power for our society.”

The New York Times reported that the new company has already bought 3,000 apartment units in Sunbelt cities including Fort Lauderdale, Fla., Atlanta and Nashville, Tenn.