04/24/22 04:49 PM EDT

SUNDAY NIGHT REIT READ | 4.24.22 | (AMH, INVH, TCN)

Rob Simone, CFA

@HedgeyeREITs

Takeaway: Hope everyone enjoyed the weekend!

Cartoon of the Weekend: Crash

Closed Real-Time Alert (RTA) Positions:

4.22.22 - Buy Signal - Covering WY $41.74 (LINK)

* Not a Position Monitor change, this is part of Hedgeye's risk management process.

Tickers: AMH, INVH, TCN

Subsector: Single-family Rentals

Headline: National media and political temperatures rising for SFR

This weekend we had another piece released HERE by a major national news organization that is critical of / highlighting the growing intersection of the SFR industry with local and national politics, populism and home affordability ahead of the 2022 midterm elections. We have said from the beginning when we launched on Residential REITs in May 2021 that arguably the biggest risk for the space is headline / political. A few key highlights below:

Article documents examples from Charlotte, NC and references other Sunbelt markets, where the increasing presence of institutional and other real estate investors buying up houses for rent, including at the lower-end of the market, is having major impacts on the availability of homes and prices paid by first-time home buyers.
More than 93% of homes purchased by corporations in Mecklenberg County, NC, as of May 2021 were acquired for <$300k. The article cites the well-known data from Redfin that ~18.4% of homes sold in 4Q21 were purchased by institutions, up from ~12.6% in the prior year. These numbers are obviously higher across the Sunbelt, including >30% in Charlotte and Atlanta, and just <30% in Jacksonville, Las Vegas and Phoenix.
Prices are set on the margin, and institutions are unequivocally becoming a more significant marginal acquirer of already tight supply, driving up prices and impacting home affordability.
In some North Carolina neighborhoods existing homeowners are concerned that recent home value increases will drive property tax increases to unaffordable levels and force relocation.
In some cases communities are fighting back - the HOA at Avalon at Midland Creek voted on an amendment that would require anyone buying a home to live in the unit for at least a year before leasing it out. The measure passed, and within a year the % of rented homes within the community had dropped by 10 percentage points. Such a measure obviously breaks the model of buying and quickly turning around a home for rent. As we have written about previously, actions such as skipping out on obtaining necessary permits for renovation work would significantly shorten the length of time necessary to complete a project, and this moves the needle in the opposite direction thereby discouraging investors.
Tricon (TCN) is mentioned in the article as a major landlord in Mecklenberg County.
As a reminder, Elizabeth Warren of MA and Sherrod Brown of OH introduced a Senate bill in October aimed at "closing legal, tax and regulatory loopholes" for the industry. We at Hedgeye expect the media attention and regulatory scrutiny directed at the industry only to increase, and not in a positive way.