Here is a chart from a recent Bloomberg article summarizing who owns single-family houses in the US.
As of Q1-2024, about 69% were owner-occupied, about 26.6% were owned by small landlords (1-9 homes), and the rest were owned by what many are now calling "corporate landlords."
The point of this graph was to show that, despite getting a lot of political attention, corporate landlords still own very little. Let's call it sub 4%, excluding iBuying companies like OpenDoor. So how much of a problem is this, really?
Smaller landlords control much more of the US market. And at the end of the day, a house owned by a small landlord versus a corporate landlord doesn't change the supply-demand balance of a market. It still represents an available home.
The first and more important problem to solve is overall housing supply. Because that does change the supply-demand balance of a market. And once again, there's no shortage of data to support the finding that increased supply tends to moderate rental growth.
For the record, I also dislike using the term home to refer to single-family houses. Home is not a housing type. It is simply a place where people live permanently. So whenever I see a title like "US homes," I get confused, because I don't actually know what they're referring to.
If you read the article, it would appear they're only talking about single-family houses. But implying that these are the only kind of home feels to me like an anachronism.
My most recent post about Opendoor, the so-called iBuying company, is about how it wants to become the "transaction layer for homes." What that means is they would like to start facilitating third-party transactions between buyers and sellers, and move away (either partially or completely) from actually owning homes for a period of time.
The company is still trying to sell homes that it purchased in Q2-2022, which, as we all know, was a very different kind of housing market. So by doing this, Opendoor would be both reducing the market risk that it takes on and making its business model less capital intensive.
Knowing this, I actually think that "iBuyer" is the wrong moniker for their business. As I see it, the long-term objective is not to just be an iBuyer of homes. The objective is to ultimately facilitate transactions in a capital efficient kind of way. The point of iBuying is/was to seed their two-sided marketplace with sellers.
As we have discussed before, two-sided marketplaces usually always have a chicken-and-egg problem. No sellers equals no buyers, and vice versa. So you have to figure out a clever way to attract one side. Of course, now that Opendoor has sellers, the company can start to aggregate the demand side (i.e. buyers). And that is exactly what it is doing with Opendoor Exclusives.
Exclusives works like this:
The inventory consists of "off-market" homes that have yet to be listed on MLS
The homes are discounted about 2-4%
They are available for 14 days
You can't negotiate the price -- it's first come, first served
If your appraisal comes in lower, Opendoor will price match
And finally, Opendoor will not pay any buyer commissions (which is reflected in the above discount)
As I understand it, if the home doesn't sell, it then gets listed on MLS and all of the normal terms and practices would apply. But before that happens, the key objective is to facilitate a quick transaction in one of two ways.
The first way is for the seller to request an offer from Opendoor's network of buyers. In this scenario, Opendoor never needs to own the home or perform any improvements (which is usually what it does when it iBuys). It is an intermediary earning some sort of take.
The second way is for Opendoor to do its usual thing and make an instant offer to buy the home. But here's the thing. With enough buyers on its platform and by creating a sense of urgency (hey, here's a lower price!), presumably the idea is that it may never need to close on a number of these homes. It just needs to find another buyer within 14 days.
If it works, this could be an interesting business.
Steven Levy over at Wired recently wrote a short piece comparing Opendoor’s iBuying approach to what Zillow was doing when it was in the space. (Thank you Robert Wright for forwarding me the article.)
As we have talked about before, the fundamental problem with Zillow’s model is that it couldn’t accurately predict where home prices were going. It was losing too much money and so they shut down that side of their business.
The article talks about Opendoor’s approach and how they’ve spent the last 8 years refining a valuation model/approach that is now apparently pretty accurate. That’s positive. But here’s another excerpt that I found particularly interesting:
There’s one controversial aspect of the business model that Wong didn’t bring up. It appears that when companies like Zillow and Opendoor can’t easily sell a home, the fallback is what’s called an “institutional sale.” All iBuyers sell a small but not insignificant percentage to institutional investors with aspirations of being “mega-landlords.” While the marketing materials of the iBuyers emphasize clean sunny rooms and frictionless transactions, that segment of the market involves hedge funds like KKR and Blackstone snapping up properties for rental, limiting the inventory available for families seeking homes. Even the Biden administration has weighed in on the evils of this trend: “Large investor purchases of single-family homes and conversion into rental properties speeds the transition of neighborhoods from homeownership to rental and drives up home prices for lower cost homes, making it harder for aspiring first-time and first-generation home buyers, among others, to buy a home,” said a recent White House dispatch.
It’s interesting for two reasons.
First, these highly tuned valuation models are now being used to scale the acquisition of single family homes. No specific figures are given, but Levy speculates that some iBuyers could be feeding up to 20% of their homes to institutional buyers. Economies of scale are a challenge with this asset class. Here technology is helping.
Second, I don’t like the tone toward renters in the above White House dispatch: “[It] speeds the transition of neighborhoods from homeownership to rental.” This line in particular implies that renting is perceived as being suboptimal to homeownership and that “speeding”’ towards the former is something that should be avoided for reasons of social good.
Even the words that are used here suggest biases. A single-family home is called, well, a home. But a rented one is a rental property. I reckon that a home is a home regardless of whether it’s low-rise, high-rise, rented, or owned.