Cities seek limits as out-of-state investment firms gobble up homes

Communities across central Indiana are taking notice as out-of-state investment companies continue to increase their market share of single-family houses and convert them to rentals.

In Hamilton County, Fishers Mayor Scott Fadness said single-family rentals account for at least 10% of the total houses in 50 subdivisions across the city. In some subdivisions, such as Brooks Chase and Brookston Place on the city’s east side, the number of single-family rentals reaches 30% to 40%.

“We don’t have anything against rentals. We’ve got a lot of mixed-use developments,” Fadness said. “But those are areas that we clearly plan to have for-rent product. What’s happening now is, you’re going into neighborhoods where someone puts their life savings into a home, walks out their front door, looks side-to-side and, all of a sudden, eight of out the 12 homes on their block are owned by a corporation that is renting them out.”

To control the number of single-family houses being turned into rentals—especially those owned by investors—Fishers is considering an ordinance that would limit the number of rental homes in a subdivision and create a registration program for them.

While the city expects it would be the first in the state to put an ordinance on the books addressing single-family home rentals, Fishers isn’t the only community dealing with an increasing number of houses being scooped up by investors and corporations to then be rented out.

According to a report published this month by the Fair Housing Center of Central Indiana, there are more than 40,000 investor-owned single-family rentals in Hamilton, Hancock, Hendricks, Johnson and Marion counties. The report, which is an update of a 2023 study that focused only on Marion County, also found real estate investors own 47% of the single-family rental houses in the five counties. Those investors that are headquartered out of state own nearly one-quarter of the single-family rental houses in the five counties.

Additionally, more than one-third of the houses are owned by seven companies called “mega-investors” in the report:

◗ FirstKey Homes, operated by New York-based Cerberus Capital Management (3,823 houses);

◗ Progress Residential, operated by New York-based Pretium Partners LLC (2,826);

◗ Las Vegas-based American Homes 4 Rent (2,681);

◗ Tricon Residential Inc., operated by New York-based Blackstone Inc. (1,670);

◗ Dayton, Ohio-based VineBrook Homes (1,257);

◗ Main Street Renewal LLC, operated by Austin, Texas-based Amherst Single Family Residential (1,180);

◗ SLB Investments LLC, operated by Indianapolis-based Job Capital LLC (1,164).

Amy Nelson, executive director of the Fair Housing Center of Central Indiana, said out-of-state companies typically pay cash and waive inspections and have an advantage over first-time homebuyers who typically require a mortgage to buy a home. In many cases, people who want to buy a house are relegated to renting. The median rent price for a single-family house across the five counties was nearly $1,800 a month, the report said.

“Most of us are not going to have big pensions. We’re not going to have stocks,” Nelson said. “Our biggest asset is going to be our home. So if our renters aren’t able to move into that, that’s going to impact them for a long time.”

Large institutional investors emerged in the wake of the Great Recession in the late 2000s when they began bulk-purchasing foreclosed homes at auction and converting them to rental housing, according to a 2022 report by the U.S. Government Accountability Office. In the following years, investors shifted to making small purchases, merging with other investors or building homes for rent.

In the years since the pandemic began in 2020, institutional investors have constituted a large portion of the single-family rental market in many cities, particularly in the Midwest and Sun Belt regions.

“What we have continued to try to make clear is, it’s been hard out there for home-buying since the COVID pandemic, and this isn’t helping with these investors coming in and taking so many homes off the market,” Nelson said.

Working on policy

Fishers Chief of Staff Jordin Alexander said more than 2,500 houses in the city are single-family rentals. That represents 8% of all single-family houses in Fishers and 30% of all rental units in the city. It’s also a significant increase since 2022 when the Indianapolis Metropolitan Planning Organization published a housing study that said Fishers had 736 single-family rentals.

Of those 2,500-plus houses, 1,186 are owned by out-of-state landlords, and 583 are owned by corporate investors. Comparatively, nationally, 3.8% of all single-family rentals are owned by investors, which can be large companies, LLCs operated by private equity firms, local real estate companies or individuals.

To address the situation in Fishers, Alexander and city staff are preparing an ordinance to establish a program that limits the number of single-family rental units to 10% per subdivision. The program also would require landlords to register rental homes in the city and receive a permit that would remain valid only until an owner decides to sell.

Houses that are rentals before the ordinance would be grandfathered in and would not be subject to the 10% cap until they are sold to a new owner, who would then be required to register the home.

Landlords who do not register a house would be subject to a fine. And applications would be denied once a subdivision has reached the 10% limit.

It’s already common for homeowner associations to limit the number of rentals in a community through their covenants. In some Fishers neighborhoods, the limit is as low as 2%.

The Fishers City Council is expected to hear the proposed ordinance introduction in either February or March. If the single-family rental cap goes into effect in Fishers, the city would follow the lead of Columbia Heights, Minnesota, in suburban Minneapolis, which two years ago established a 10% limit of its own. While the Fishers proposal would be per subdivision, the Columbia Heights policy is on a per-block basis.

“It has been something that is on the rise, and so you see communities trying to be a little more proactive about it,” Alexander said.

Fadness has taken a leadership role over the past three years in attempting to find a solution for what he views as a problem. In 2022, the city conducted a housing study to get an idea of how many single-family houses in Fishers were owned by out-of-state investors and national rental companies.

He received national attention in June 2022 when he appeared on NBC Nightly News with Lester Holt and put a spotlight on the topic.

“We realized this is a problem that many are dealing with across the country,” Fadness said. “We anticipate we’re not the only community dealing with this issue, and I think others will be watching closely at how this transpires. I would imagine there’ll be other communities that will, if this goes well, will probably try to mirror what we’re trying to do.”

Around the area

The Indianapolis MPO report noted that there have been three waves of corporate-owned single-family purchasing trends in central Indiana since the late 2000s.

From 2007 to 2013, companies focused on lower- and middle-income neighborhoods around Indianapolis where foreclosure rates were highest, the report said.

From 2014 to 2019, the focus shifted toward “middle of the road” neighborhoods with newer housing stock built during the 2000-2008 housing boom. During this period, companies began purchasing homes in greater numbers on the south side of the metropolitan area, particularly in Johnson County.

In the years since 2020, companies have expanded their purchases in the suburbs on the north side and began constructing build-to-rent communities, which are typically built by a developer as a master-planned community with 100 to 200 houses.

“We were actually surprised at Johnson County and how much purchasing has been happening there, particularly by the larger investors,” Nelson said about the Fair Housing Center of Central Indiana’s findings.

In Greenwood, Mayor Mark Myers estimated that in two neighborhoods, one along U.S. 31 and the other near the city’s Main Street, 50%-75% of the houses are rentals owned by a single company. He said that makes it difficult for people who want to purchase a house in Greenwood and for existing residents who live next to a company’s rental house.

“It’s just getting out of hand,” he said. “[The companies] don’t do maintenance. They don’t do upkeep. They don’t check in on their residents. And our code enforcement spends a long time with those residents trying to keep those [houses] cleaned up. And, so, yes, we do have a problem.”

Myers added that Greenwood has “practically a zero vacancy” due to out-of-state companies finding houses online and buying them sight unseen in excess of asking prices. He has talked with other Greenwood city leaders about the possibility of limiting the number of rental houses per neighborhood.

“We don’t know how to enforce that yet, so I’m really curious as to what Mayor Fadness wants to do with that and how he’s going to do it,” he said.

Carmel spokeswoman Kate Lustig said the city studied investor- and corporate-owned rentals last year as part of Mayor Sue Finkam’s Housing Task Force. In 2023, the Carmel City Council amended the city’s subdivision rules to make it easier for new HOAs to revise covenants regarding rentals.

“We do hear from our residents who are impacted by absentee property owners,” Lustig said. “Their experiences are an important reason why Carmel City Code has a property maintenance ordinance.”

Noblesville officials are also investigating how much out-of-state rentals have increased since 2022 when the Indianapolis MPO report counted 972 rental houses in the city.

“Noblesville consistently engages with HOAs, and residents have brought up the concerns and impact of rental properties in neighborhoods,” Noblesville Communications Director Lexie Rock said.

While Fadness and his team take matters in their own hands, lawmakers are working on solutions of their own.

State Rep. Earl Harris Jr., D-East Chicago, filed House Bill 1293, which in part targets large investors and establishes the maximum number of single-family residences a company can own.

“It’s just an unfair game,” he said. “We also know that for a lot of people, homeownership, besides being part of the American Dream, is also related to the economics that you have now and the economics of your future. Homeownership helps to create generational wealth, which is then connected to things like public health, public safety, what happens with your kids and their education.”

HB 1293 has been assigned to the House Ways and Means Committee, of which Harris is a member.

In the Senate, Sens. J.D. Ford, D-Indianapolis; Fady Qaddoura, D-Indianapolis; and Greg Walker, R-Fishers, have introduced Senate Bill 232, which requires a landlord to be authorized to do business in Indiana and maintain an office in the state or appoint an Indiana-licensed real estate broker or broker company to manage rental properties.

That bill has been assigned to the Senate’s Judiciary Committee.

“This is a problem that goes beyond just one community, and I applaud Fishers. But I’m also kind of thinking about maybe doing a statewide approach,” Ford said.•