Landlords

Landlords

Todd M. Richardson, Acting General Deputy Assistant Secretary for Policy Development and Research.

Matthew Desmond’s 2016 book Evicted: Poverty and Profit in the American City tells the story of two neighborhoods, one a predominantly white trailer park community and the other a predominantly African-American community in Milwaukee. The book tells the story of the tenants and landlords in both neighborhoods.

Although the book raised important questions about the consequences of eviction for low-income individuals and families, I was particularly interested in a less-discussed aspect of the book: the story of the landlords. There is very little research on landlords, and Evicted offers an in-depth look at two landlords from very different environments.

In HUD’s work to address homelessness and provide affordable rental housing for low-income families, landlords play a critical role. The lack of available research on landlords has created a policy blind spot.

Who are America’s landlords? According to data from the 2015 American Housing Survey, there are nearly 48.5 million rental units in the United States, 43.9 million of which are occupied. The 2015 Rental Housing Finance Survey (RHFS) shows that these units are in 22.5 million properties. The RHFS identifies two primary types of ownership:

• Individual investors. About 22.7 million units in 16.7 million properties are owned by individual investors. Individual investors are more likely to own single-family and duplex rental homes. We often describe these investors as “mom and pop” landlords.
• Business entities. The remaining 25.8 million units are owned by businesses, primarily limited partnerships, limited liability companies, and limited liability partnerships. Businesses are more likely to own the multifamily rental inventory.

How many individual investor landlords are there? To answer this question, I look to Internal Revenue Service (IRS) tax data. Individual investors are more likely to file their rental income taxes on the Schedule E of Form 1040. According to publicly available IRS Statistics of Income data, approximately 10.6 million taxpayers (7.1 percent of all 1040 filers) declared rental income in 2015 for 17.7 million properties — a finding similar to the 16.7 million properties that the RHFS reports for this group. Based on these data, I estimate that in the United States there are between 10 million and 11 million individual investor landlords managing an average of two units each, many with just one unit.

A particularly fascinating aspect of the IRS data was the dramatic increase in number of folks reporting rental income on their 1040 Schedule E between 2009 and 2011, from about 8.6 million to 10.6 million. My conclusion is that during that timeframe, many folks took advantage of the glut of foreclosed single-family properties being sold at low values. The number of small investor landlords has remained relatively flat from 2011 through at least 2015.

As home values have risen, however, those rentals, mostly single-family homes, have not yet returned to the housing stock as owner-occupied units. One reason, as shown in the tax data, is that landlords likely hold on to these properties because they are profitable, particularly when factoring in the tax benefits associated with depreciation. Having these more affordable single-family homes unavailable to prospective homebuyers may be one reason for the limited supply of affordable units available for new homeowners. There are, of course, many other well-documented reasons associated with both supply and demand constraints that explain the slow rebound to homeownership.

How many business entity landlords are there? The number of unique businesses that are landlords is harder to determine, but based on RHFS data, I estimate that there are fewer than 1 million business entity landlords. These landlords likely own an average of more than 20 units, with many managing hundreds of units.

How many total landlords are there? In an interesting data shortfall, researchers don’t know the precise number of landlords in the United States; however, based on the data above, I estimate that the number is somewhere between 10 and 12 million, and the number likely grew during the foreclosure crisis.

If the number of landlords nationwide has grown since 2009, then are there more landlords willing to accept housing choice vouchers? To answer this question, PD&R staff provided me with the number of unique Taxpayer Identification Numbers we have for non-Moving to Work public housing agencies (PHAs) running the voucher program and found the opposite trend: the number of unique landlord records declined between 2009 and 2016, from 775,000 to 695,000.

Why are fewer landlords participating in the Housing Choice Voucher program? PD&R recently released a new report, “Urban Landlords and the Housing Choice Voucher Program” by Phillip Garboden, Eva Rosen, Meredith Greif, Stefanie DeLuca, and Kathryn Edin, that can help us better understand landlords’ experience with the Housing Choice Voucher program.

For this report, the researchers interviewed 127 landlords in three metropolitan housing markets: Baltimore, Cleveland, and Dallas. This study is one of those studies that is best read cover to cover. The best aspects of the study are not found in the executive summary or conclusions but rather in the individual experiences of landlords that are highlighted.

For the purposes of policy, the report clearly demonstrates that landlords make a very rational benefit-cost analysis when deciding to accept vouchers, weighing their acceptance “against a hypothetical tenant that they might otherwise rent to in the open market.” The authors also observe that landlords base their calculations on two important elements that HUD has some control over: financial motivation (a steady income and low turnover are reasons to accept voucher tenants) and bureaucratic factors (the burden of inspections, the general bureaucracy of the PHA, and the lack of PHA support in tenant conflicts will discourage landlords from accepting voucher tenants). There appear to be some landlords who specialize in the Housing Choice Voucher program and others who actively avoid it.

This study also shows that when PHAs and HUD are considering policy changes, they need to be aware that the more than 10 million individual investor landlords are quite different from the fewer than 1 million business entity landlords. The individual investors manage and maintain their properties themselves — often on a part-time basis and with limited professional training — whereas the business entities typically have full-time professional management companies managing their properties.

This report is a product of our Research Partnerships program. The Office of Policy Development and Research did not solicit research on landlords. Rather, this research team identified this issue as one worth studying and proposed it to HUD through the Research Partnerships program. We agreed that this area of research was important and provided some funding and data to support the study. As with all participants in the Research Partnerships program, the researchers had additional funding. Thank you to the Furman Center for Real Estate and Urban Policy and the Annie E. Casey Foundation for also supporting this work.