NC proposed bill to outlaw institutional landlords

[Chris Martin]

This bill (short title Home Ownership Market Manipulation) will not pass, but it's interesting that some NC state house members put in writing and propose limiting real estate rental ownership to 100 or less properties. The main text is below:

§ 75-152. Impermissible ownership quotas

It is unlawful for a person, including affiliates of the person, to purchase a single-family home in a qualifying county for a purpose other than use by the person as a residence if the person, including affiliates of the person, owns 100 or more single-family homes in qualifying counties that are used primarily for rental purposes.

What I see is a proposed statute (an act) that violates free trade and commerce that is covered by NCGS 75-1 and NCGS 75-2. I put the text after this paragraph. What I also see is a signal that the build-to-rent model is still deemed (by the NC authors of this faulty legislation) viable in NC, since this bill explicitly states, "purchase a single-family home" as opposed to "build or purchase a single-family home". This blog post from The School of Government at UNC Chapel Hill states that zoning may regulate land use, but not the form of ownership under current laws. 

§ 75-1. Combinations in restraint of trade illegal.

Every contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce in the State of North Carolina is hereby declared to be illegal. Every person or corporation who shall make any such contract expressly or shall knowingly be a party thereto by implication, or who shall engage in any such combination or conspiracy shall be guilty of a Class H felony.

This bill will go nowhere. It should end up in the same pile as the Rental Registration mess that the NC legislature overturned in 2019. The wording at the state level is now (in § 160D-1207. Periodic inspections):

(c) In no event may a local government do any of the following: (i) adopt or enforce any ordinance that would require any owner or manager of rental property to obtain any permit or permission under Article 11 or Article 12 of this Chapter from the local government to lease or rent residential real property or to register rental property with the local government, except for [gross code violations]

Why are they bringing this bill to the floor now? My take: housing affordability is really bad, and people are #1) priced out of home ownership, #2) pissed off, #3) complain to the politicians. High mortgage interest rates, high housing costs, and high new home construction prices have created an environment for politicians to exploit. About the only 'action' local politicians can take is to interfere with commerce by artificially limiting real property ownership. 100 houses. Seems arbitrary. Why not 110? 

Let me take a step back: 12 years ago, house prices were so low, appraisers didn't know how to handle it. This is what I wrote on BP on 7/27/2011: 

Then you have issues like this, directly from a current appraisal that basically says there is no way to value the property: "The problem with the MC [sic] data presentation is that the subject's submarket is so small, wild fluctuations can appear from period to period... No truly like kind sales were available from within the past 12 months... This market has effectively collapsed over the previous 12 to 18 months... price for fixerupper properties have dropped to lows not seen in a generation"

My point is that real estate markets change. A dozen years from now, who knows what the market will look like. Think about this. If this proposed (faulty) bill existed in 2011, the local (Raleigh area) real estate market would never have benefited from the mass buying of American Homes 4 Rent that, literally, transformed the market in 2013. I wrote about that on BP as well. 

I believe in sensible regulations. This proposed bill is nonsense. The Texas bill that sponsors Discrimination by National Origin at the state level is equally nonsensical. 

[Chris Martin]

@Peter K.

Agreed, this (proposed and probably failed) bill is not helpful in the big picture. 

In the highly unlikely this bill becomes law, American Homes 4 Rent and other institutional buyers will most likely NOT buy any more homes in Wake or Mecklenburg counties. We are in a real estate bear market now and for human property owners, it's better to have more institutional buyers rather than fewer. If I just focus on Wake County alone, this legislation will apply primarily to at least two dozen entities but less than 30, and these entities own at least 5,220 properties. That's a non-trivial number but still small when compared to all residential property in the TAM (Total Available Market). 

One note about the proposed bill: the authors copied the text of their proposed Section 75-153 verbatim from Section 75-145. That part of the bill sets the punitive damages for buying a rental property in excess of the 100th at $50,000. That's in addition to the $100.00 per day fine for each single-family home acquired in violation of the provisions of the bill. The message is clear: companies in the lists below will NOT be aiding homeowners if they happen to fall on hard times and need a corporate buyer-bailout. 

I think the bill authors figured that knocking off a few big corporate companies would make a political difference. Honestly, if the goal is to control high rental prices, then they could propose to just repeal § 42-14.1. Rent control. But repealing rent control would create a political stink that neither party could handle. 

So, I wondered 'how many companies would this bill affect?' I say companies because almost no individuals have 100+ properties in their name. Actually, after running searches it turns out that zero people (humans) own 100+ properties in Wake County. Certainly, I know American Homes 4 Rent, Raleigh's biggest landlord, owns way more than 100 properties and I know they are essentially the target of this proposed legislation. The answer is about 30. 

Methodology

Using public data sets on my Linux-based platform I did some searches. The only fields needed are 'owner' (fields 1 and 2), which is the first filter, followed by a simple sort, and then uniquely count those records, then sort with counts. To get American Homes and how many properties they own (N>=10 not shown for clarity):

$ cat al*| awk 'BEGIN {FS="_"} { print ($1,$2);}'|sort|uniq -c|sort -n|grep "AMH "

10 AMH NC PROPERTIES, L.P.
13 AMH NC PROPERTIES, L.P., LIMITED PA
14 AMH 2014-2 BORROWER LP
17 AMH 2014-3 BORROWER LP
24 AMH ROMAN TWO NC LLC
30 AMH NC PROPERTIES LP LIMITED PARTNE
33 AMH NC PROPERTIES TWO LP
37 AMH HB HOLLEMAN HILLS VENTURE LP
42 AMH 2015-2 BORROWER LP LIMITED PART
49 AMH HB HOLLEMAN HILLS BORROWER LP
121 AMH 2015-1 BORROWER LLC
173 AMH NC PROPERTIES LP
201 AMH 2015-2 BORROWER LLC
195 AMH 2014-2 BORROWER LLC
213 AMH NC PROPERTIES, LP
296 AMH 2014-3 BORROWER LLC

While the record counts are exact, the companies may not have all their holdings in entity names that I can explicitly identify, so my heuristics are an estimate at best. Other covered entities would include:

10 PROGRESS RESIDENTIAL BORROWER 7, LL
14 PROGRESS RESIDENTIAL HVH BORROWER L
15 PROGRESS RESIDENTIAL BORROWER 15 LL
18 PROGRESS RESIDENTIAL BORROWER 21 LL
20 PROGRESS RESIDENTIAL BORROWER 20 LL
25 PROGRESS RESIDENTIAL BORROWER 8 LLC
28 PROGRESS RESIDENTIAL BORROWER 10 LL
36 PROGRESS RESIDENTIAL BORROWER 17 LL
41 PROGRESS RESIDENTIAL BORROWER 16 LL
48 PROGRESS RESIDENTIAL BORROWER 14 LL
48 PROGRESS RESIDENTIAL BORROWER 19 LL
48 PROGRESS RESIDENTIAL BORROWER 6 LLC
51 PROGRESS RESIDENTIAL BORROWER 11 LL
51 PROGRESS RESIDENTIAL BORROWER 2 LLC
51 PROGRESS RESIDENTIAL BORROWER 7 LLC
53 PROGRESS RESIDENTIAL BORROWER 5 LLC
60 PROGRESS RESIDENTIAL BORROWER 1, LL
87 PROGRESS RESIDENTIAL 2015-2 BORROWE
90 PROGRESS RESIDENTIAL BORROWER 4 LLC
92 PROGRESS RESIDENTIAL BORROWER 3 LLC
98 PROGRESS RESIDENTIAL 2015-3 BORROWE

16 CPI AMHERST SFR PROGRAM II OWNER L
45 CPI/AMHERST SFR PROGRAM II OWNER LL
101 CPI/AMHERST SFR PROGRAM OWNER LLC

6 2019-1 IH BORROWER LP LIMITED PARTN
7 IH6 PROPERTY NORTH CAROLINA, LP
12 IH4 PROPERTY NORTH CAROLINA LP
14 IH6 PROPERTY NORTH CAROLINA LP LIMI
16 2017-1 IH BORROWER LP
25 2018-3 IH BORROWER LP
30 2018-2 IH BORROWER LP
39 IH3 PROPERTY NORTH CAROLINA LP
46 IH5 PROPERTY NORTH CAROLINA LP
109 IH6 PROPERTY NORTH CAROLINA LP
133 2018-4 IH BORROWER LP

101 DOMUS NOVUS BORROWER 1 LLC
114 RS RENTAL I LLC
135 SOUTH RALEIGH HOLDINGS #1, LLC
136 HRA U SUITES LLC
149 ABODE GENEVA SFR OWNER LLC
174 INDIAN CREEK MHP, LLC
193 YAMASA CO LTD
329 AC BLACKWOLF RUN OWNER LLC

The above lists don't include companies like First Key Homes because they hold fewer homes per entity. These lists are not meant to be exhaustive, just a representation of the companies the bill may impact.