By Dan Smith
Seizing on loopholes in California law, private equity firms are enforcing unfair practices on Bay Area renters who find that their hard-nosed new landlord lives on Wall Street. Such are the findings of a new study by a California tenants’ advocacy group that examines the burgeoning single-family home rental market.
Tenants Together polled renters from the three largest single-family home landlords in the state to document the problem in its recent report, “The New Single-Family Home Renters of California,” which also recommends some specific legislative solutions.
“Wall Street landlords charge higher than median rents,” the report states, describing “a new, untested kind of landlord-tenant relationship” that also includes increased speed and frequency of eviction, and other injustices. “Many (tenants) are performing their own maintenance and repairs… These tenants are taking on the responsibility of ownership with none of the benefits.”
The percentage of renters in single-family homes has risen dramatically since the mortgage crisis of 2008 to 2010. The biggest increase among renters in the U.S. since 2005 has been the percentage living in such homes. A Fannie Mae report pegged the increase from 30.8 percent of renters living in detached housing in 2005 to 33.5 in 2012, a growing demographic that now exceeds 15 million Americans.
According to a recent New York Times story on the subject, banks and federal housing officials have discounted thousands of troubled mortgages for equity firms and hedge funds to scoop up in the misplaced hope that these firms will be more flexible with homeowners who are behind on payments. Just as the Times story points a finger specifically at Lone Star Funds and its mortgage firm for pushing hundreds of these homes into foreclosure, so Tenants Together finds another equity firm to be particularly unfair to California renters.
The advocacy group surveyed tenants of three firms and their subsidiaries: Blackstone/Invitation Homes, owners of about 5,000 homes in California; Starwood Waypoint Residential/Waypoint Homes, with 2,500 California houses; and Colony Financial/Colony American Homes with 2,000.
One-third of the survey respondents reported receiving 3-day pay-or-quit notices, usually even before rent was overdue, and the percentage of Waypoint tenants receiving them was even higher. Sixty percent of respondents reported that late fees charged for their rental were at least $50, a punitive level that violates California law. For Waypoint, a firm whose entire 11,000-home portfolio is single-family, the figure was nearly 75%. Additionally, several Waypoint tenants reported being told they would have the opportunity to buy their home, only to be told once they were in that they did not qualify.
Other improprieties found among tenants of the three firms include substandard housing conditions, illegally being forced to pay rent online, and being charged an illegal, non-refundable holding deposit for the property.
Asked for a response to the report’s allegations, John Christie, director of investor relations for Starwood Waypoint, said they have not seen the report but doubted it was “an accurate reflection of our customers’ satisfaction.”
“We pride ourselves on providing excellent customer service, which is critical to the high-quality rental experience we provide and has supported a high rate of resident retention over time,” said Christie. “Our research reflects that the vast majority of our residents are pleased with the management of our properties.”
The biggest threat to California residents, however, is Wall Street’s propensity for hiking rents, according to the report. This is particularly a problem in the San Francisco-Oakland region, which led all California areas surveyed with housing costs between 46 and 59 percent higher than the national median.
“Tenants renting single-family homes are thrust into a world where they can be evicted for no cause, and rents can be increased any amount a landlord wishes,” says the report. “Currently in California, single-family homes cannot be covered under rent control – thanks to the state’s Costa-Hawkins Rental Housing Act – and only a handful of cities have a rent control ordinance (anyway). California is currently in a housing affordability crisis, and Wall Street landlords are in position to potentially compound the crisis.”
Costa-Hawkins was passed in 1995 to protect small-scale property owners from rent control that could render single-unit investments infeasible. Of a dozen recommendations issued by the Tenants Together report, revision of this law to regulate rent hikes by Wall Street landlords is the first listed among those at the state level. Others include creation of a state ombudsman for tenants, legislated transparency for state-sponsored investors like CalPERS and CalSTERS, and registration of Limited Liability Companies that would clearly connect them to the actual landlord. Waypoint Homes reportedly uses at least 24 different LLCs, making their involvement in ownership difficult to trace.
On the local level, most of the recommendations would provide tenants protection from unjust evictions, such as legal help for tenants, more transparency of tenant displacement data, and laws requiring just cause for eviction.
Decrying the “transfer from an ‘ownership’ society to a ‘rentership’ society,” the report concludes, “Instead of families benefiting from increased equity in their homes, Wall Street landlords are now seeing this benefit. … Tenants should not feel required to make their own repairs, and communities should be able to protect residents from rent gouging and displacement.”