American Dream For Rent: Local leaders seek rent cap laws, registries

But local officials say their hands remain tied to enact the type of regulation that might protect renters from abusive practices and help hold accountable distant landlords who fail to keep up their properties.

“As long as Georgia is a property rights state, it’s very limited what we can actually do,” said Stockbridge Councilman Elton Alexander.

Local leaders are urging state and federal lawmakers for help in cracking down on the worst offenders.

American Dream for Rent, a ground-breaking investigation earlier this year by The Atlanta Journal-Constitution, found in recent years institutional investors have acquired some 65,000 homes across 11 metro counties, exacerbating the region’s affordability crisis. A review in recent weeks of metro area property records shows that total remained roughly steady by the end of 2023, with some companies increasing their portfolios while others sold off properties.

These rental giants — coupled with a generational housing shortage, inflated construction costs and a surge in demand — helped contribute to a historic rise in housing prices. The region is also a top market in the U.S. for build-to-rent subdivisions.

Investors have gobbled up houses across the Atlanta area, but purchases are disproportionately in places with entry-level homes and in communities of color, a pattern that experts say is likely to exacerbate the racial wealth gap.

Local governments in Georgia don’t have the ability to restrict what kind of entities buy homes or cap rents. Even the measures adopted by some counties and cities — such as limiting the number of rentals in new neighborhoods — have not been tested in the courts.

That’s where state lawmakers and Congress could step in to provide more tools to local officials or tackle this bulk buyer issue directly, experts say.

State Sen. Donzella James, D-Atlanta, is sponsoring S.B. 125, which would allow local governments to regulate how much rent prices can increase. She argues that expanding local control over rent prices would weed out absentee landlords.

“If they’re having fair prices on rent and they’re not gouging people, they’re not going to be affected,” she said, adding that she’s trying to garner GOP support after the bill stalled in the Senate last year.

H.B. 404, the Safe at Home Act, would for the first time require Georgia landlords to provide rental housing that is “fit for human habitation.” That bill came in response to another AJC investigation called “Dangerous Dwellings,” that examined unsafe apartment communities. But H.B. 404 does little to define what this means or establish recourses for tenants.

The proposal also would give tenants who are late on rent a three-day grace period before their landlords may file for eviction in court, and it caps security deposits at two months’ rent. The bill, backed by Republican House Speaker Jon Burns, passed the lower chamber last year but failed to get a full vote in the Senate, where it is expected to be heard during this upcoming session.

In Washington, Democratic lawmakers have also sponsored a bill called the End Hedge Fund Control of American Homes Act, which aims to force institutional investors to divest from single-family home ownership after 10 years. But the legislation is likely a long shot.

“When people buy homes, doors open to opportunity,” U.S. Rep. Nikema Williams, D-Atlanta, a co-sponsor, said in a news release. “When hedge funds buy homes, those doors shut.”

The National Rental Home Council, which represents the largest U.S. rental home companies, said the legislation would be counterproductive and hurt renters by limiting their choices.

David Howard, the organization’s CEO, said the bill would “only limit the availability of affordably-priced single-family rental housing, ensuring sought-after neighborhoods remain off limits to families for no other reason than they choose to rent.”

Credit: Emily DiRico

Credit: Emily DiRico

Temporary slowdown

Wall Street’s drive into single-family rentals, historically a mom-and-pop business, was fueled in part by historically low interest rates since the Great Recession. A shortage of housing forced rents skyward.

The Federal Reserve’s recent efforts to tame inflation increased borrowing costs, tempering growth in the sector.

“It really has shifted,” said John Hunt, principal in MarketNsight, an Atlanta-based firm that tracks housing. “When rates were low, that’s when the institutional guys went gung-ho... When the rates are high, those guys struggle.”

Despite the lull in transactions, Wall Street has not exited the housing game.

Five of the largest investment companies in metro Atlanta increased the number of homes in their portfolios during 2023, albeit at a slower pace than the post-pandemic shopping spree, according to property records analyzed by the AJC.

Credit: HYOSUB SHIN / AJC

Credit: HYOSUB SHIN / AJC

Some politicians and housing experts fear the rush of investor activity will rebound as soon as interest rates reverse course, prompting a push for legislation to prevent the frenzy from repeating.

“These institutional investors have a lot more resources than a typical homeowner,” said state Sen. Emanuel Jones, D-Decatur. “That’s what the government’s role is for: leveling the playing field.”

‘Stay out of my county’

Those efforts begin — and possibly end — at the local level.

Henry County was home to 11 of the 20 hottest census tracts for bulk buyers in the metro area, the AJC’s analysis found. In January, the county imposed a one-year moratorium on most housing applications and implemented a cap preventing more than 5% of homes in new subdivisions from being rentals.

Henry Commission Chair Carlotta Harrell said the moratorium, which ends the first week of January, was an attempt to stymie investor activity and keep more single-family homes in the hands of individual owners.

“If you don’t want to meet my standards, just stay out of my county,” she said.

DeKalb County Commissioner Lorraine Cochran-Johnson is pushing the county’s legislative delegation to eliminate Georgia’s prohibition on rental registries and rent caps, which she argues hamstrings local governments.

“We’re keenly aware of what’s happening, but we have no ability to take what I consider meaningful action because our hands are somewhat tied,” she said.

In Lawrenceville, where frequent renter turnover and property maintenance issues led residents to push for restrictions on investor buying, the recent slowdown in sales has quieted those worries, City Manager Chuck Warbington said.

“I don’t hear a lot from the homeowners’ associations the way I did a year ago,” he said, adding that the city hasn’t taken any action to regulate investor owned properties.

Samyukth Shenbaga, the manager of the Atlanta Regional Commission’s Community Development Division, said local communities worried about housing affordability need to focus on ways to lower the barrier to entry for housing with tools already in their arsenal.

This includes loosening zoning restrictions to encourage more homebuilding, down-payment assistance programs, increasing homestead exemption values or providing tax incentives for affordable housing developers.

“There needs to be as much energy on the flip side of how to actually help folks who are wanting to get into homeownership at an affordable price,” he said.

Build-to-rent

Another wrinkle is the emergence of the build-to-rent industry.

Build-to-rent is a small, but growing piece of the overall housing market. Metro Atlanta had the third-most build-to-rent units in the U.S. in 2022, behind Dallas and Phoenix, according to data firm Yardi Matrix.

Atlanta-based PulteGroup doesn’t rent out what it builds, but it does business with companies that do. Five years ago, virtually none of the thousands of houses built by PulteGroup went to rental companies. But this year, about 600 of its houses — roughly 2% of the total — are being bought by rental companies.

PulteGroup expects build-to-rent to be about 5% of its business within a few years, said spokesman Jim Zeumer.

Fearing a flood of build-to-rent subdivisions, Stonecrest in south DeKalb adopted an ordinance to restrict where such houses can be built and require developers to disclose whether houses will be owner-occupied.

Stockbridge enacted a moratorium on single-family homes when a developer in 2021 did not disclose a new 75-house community would be sold to a rental company. In response, the city implemented a 10% rental cap on new subdivisions.

“Build-to-rent is not all bad,” said Alexander, the Stockbridge councilman. “It is the oversaturation of any of these that would be bad.”

Shenbaga said 2024 will be a pivotal year for Wall Street landlords, especially if interest rates decrease. Their profit models have not changed and if regulation remains the same, a resurgence is likely.

“This would not exist if there was not a demand for it,” he said.

Our Reporting

The 2023 AJC investigative series, American Dream for Rent, found institutional investors in recent years had purchased more than 65,000 homes across 11 metro Atlanta counties, making the region a national epicenter for the single-family rental sector. The AJC analysis of property records showed Wall Street landlords gobbling up houses across the Atlanta area, contributing to a historic rise in housing prices and putting homeownership out of reach for many. The AJC also found that Georgia law has enabled bulk buyers of single-family homes to evade accountability when they ignore renters’ pleas for basic maintenance and customer service.