Amid a rapid arms race among high-tech corporations and private equity firms to buy up property and profit off a red-hot housing market, the Los Angeles City Council has voted to explore ways to ban such companies from purchasing single-family homes.
The council agreed on Friday to instruct the city legislative analyst and city attorney to produce recommendations on strategies through which technology companies and private equity firms can be stopped from “engaging in speculative practices that involve purchasing affordable, predominantly single-family housing” in the city of Los Angeles.
Like many other areas of the U.S., Los Angeles is grappling with a housing crisis that is threatening middle-class families. The city ranks among the most unaffordable markets in the country, and housing prices increased more than 10 percent there over the last year.
The motion, co-authored by city council members Nury Martinez and Nithya Raman, focused particular attention on high-tech house-flippers known as iBuyers, which purchase moderately priced single-family homes, fix them up, and then resell them, banking a convenience fee and any appreciation. Such companies have been in something of an arms race to scale up their operations and gain an edge in the quickly growing industry.
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“The housing crisis has been further exacerbated by high tech companies such as Zillow, Opendoor, Rockethomes, and Redfin as well as private equity firms,” the motion stated. “This trend systematically increases the pricing of single-family homes in a real estate market that is already experiencing skyrocketing housing prices.”
After announcing plans this year to make a push in the iBuyer space, Zillow suffered embarrassment earlier this month when it said that it could not adequately evaluate the prices of homes and was instead withdrawing from the sector. But competitors are showing no signs of slowing down. Opendoor, the leader in the iBuyer industry, said last week that it had purchased over 15,000 in the third quarter and now operated in 44 markets around the country.
The burgeoning iBuyer industry is not a likely reason for the increases in Los Angeles so far, accounting for just 1.2 percent of the city’s housing market share in the second quarter of this year, according to a September Zillow report.
But such iBuyers are making headway in the Southern California market, purchasing a record number of homes there this spring with even more ambitious plans for the future.