Existing law provides that real property within the state is governed by the law of this state, except where title is in the United States. Existing law generally regulates the obligations of owners with respect to real property.

This bill would prohibit a business entity, as defined, that has an interest in more than 1,000 single-family residential properties from purchasing, acquiring, or otherwise obtaining an ownership interest in another single-family residential property and subsequently leasing the property, as specified. The bill would authorize the Attorney General to bring a civil action for a violation of these provisions, and would require a court in a civil action in which the Attorney General prevails to order specified relief, including that the business entity pay a civil penalty of $100,000 for each violation and that the business entity sell the property to an independent third party within one year of the date that the court enters judgment. The bill would require that these provisions be the exclusive means of enforcement of these provisions. The bill would define various terms for these purposes.

Existing law provides that real property within the state is governed by the law of this state, except where title is in the United States. Existing law generally regulates the obligations of owners with respect to real property.

This bill would prohibit a business entity, as defined, that has an interest in more than 1,000 single-family residential properties from purchasing, acquiring, or otherwise obtaining an ownership interest in another single-family residential property and subsequently leasing the property, as specified. The bill would authorize the Attorney General to bring a civil action for a violation of these provisions, and would require a court in a civil action in which the Attorney General prevails to order specified relief, including that the business entity pay a civil penalty of $100,000 for each violation and that the business entity sell the property to an independent third party within one year of the date that the court enters judgment. The bill would require that these provisions be the exclusive means of enforcement of these provisions. The bill would define various terms for these purposes.

ASSEMBLY THIRD READING

ATR Bill Id:AB 1240

Author:(Lee)

As Introduced Ver:February 21, 2025

Majority vote

SUMMARY

Prohibits business entities that own more than 1,000 single-family residential properties from purchasing any additional single-family properties and leasing them out.

Major Provisions

1. Defines "business entity" as any association, company, firm, partnership, corporation, limited liability company, limited liability partnership, real estate investment trust, or other legal entity, and that entity's successors, assignees, or affiliates.
2. Expressly excludes from the definition of "business entity" any of the following:
   1. A nonprofit corporation or other nonprofit legal entity.
   2. A person or entity primarily engaged in the construction of housing.
3. Defines "single-family residential property" as real property improved with one dwelling unit on it for which a certificate of occupancy has been issued.
4. Prohibits a business entity that has an interest in more than 1,000 single-family residential properties from purchasing, acquiring, or otherwise obtaining an interest in another single-family residential property and subsequently lease the property.
5. Authorizes the Attorney General to bring a civil action in the name of the people of the State of California for a violation of this bill.
6. Establishes that if the Attorney General prevails in a civil action, the court must order the following relief:
   1. Reasonable attorney's fees and costs;
   2. The business entity to pay a civil penalty of one hundred thousand dollars ($100,000) for each violation;
   3. The business entity to sell the property to an independent third party within one year of the date that the court enters the judgment; and
   4. Any other relief the court deems appropriate.

COMMENTS

California is facing a housing crisis. The inventory of available homes—especially of affordable entry-level homes—is severely constrained. In tackling this issue, the Legislature has focused on increasing supply and maintaining home affordability, but with limited success. The decline in homeownership has resulted in a growing population of renters. Recognizing the importance of homeownership for financial stability, this bill seeks to stymie the rise of corporate "buy/build-to-rent" model by prohibiting business entities with large single-family home portfolios from purchasing and renting out property in the state.

The overwhelming majority of single-family rentals are owned by smaller landlords. In June 2021, the Urban Land Institute reported that small-scale investors own 97 percent of the nation's single-family rental inventory, meaning that the share of institutional investors is just three percent. (Congressional Research Service, Single-Family Market Rents and Institutional Investors, October 3, 2022, available at https://crsreports.congress.gov/product/pdf/IF/IF12225.)

In California, the percentage of institutional investors is tiny. According to a March 6, 2024 Roofstock report, business entities that have more than 500 homes in their portfolio represented less than 1% of California home purchases in 2023. In other words, even in the absence of legislation, the group that this bill is targeting purchased only 0.8% of all single-family homes sold in the state in 2023. A newly released 2025 report shows that the number dipped even further in 2024.

Though currently small, the author points to the growing national trend of the corporate build/buy-to-rent single-family home model, the fluctuation in interest rates, and the serious concerns it raises about home affordability and availability—particularly in a market with constrained inventory.

This bill prohibits business entities with an interest in more than 1,000 single-family homes in their portfolio from purchasing and leasing out any additional single-family homes. The prohibition applies to a business entity that owns more than 1,000 units anywhere, as it is intended to target the country's "mega investors" regardless of how many homes they may own in the state. While there is no universally accepted definition of institutional ownership, the 1,000 figure is commonly used to describe the largest investors in the single-family rental market. (See Thomas Malone, The New Normal? Single-Family Investor Activity Remains Steady in Q3, CoreLogic Intelligence (blog), CoreLogic, December 8, 2022, https://www.corelogic.com/intelligence/the-new-normal-single-family-investor-activity-remains-steady-in-q3.) Thus, if a business entity owns 1,000 homes elsewhere, it is prohibited from purchasing and leasing even one additional home in California. The bill sets a hard cap of 1,000 homes: if a business entity clears a certain number of homes from its portfolio so that it has an interest in fewer than 1,000 homes, it can later purchase and rent out more—up until the 1,000 single-family home cap. Further, the bill's prohibition applies only to buying and leasing; this measure does not limit a business entity, regardless of the number of homes it already owns, from purchasing additional homes, so long as it does not rent them out. It is unclear what the policy rationale is for prohibiting purchase for rent but allowing purchases to just sit vacant or get "flipped" by institutional investors only to be sold at a markup to individual buyers.

Opposition's concerns. In opposing last year's bill AB 2584 (Lee) of 2024, the National Rental Home Council argued the concentration of institutional capital in low-income areas as a societal positive: corporate rentals provide a desired product for those wanting the advantages of single-home living without the burden. They also pointed to data suggesting that rents of mid-tier single-family rental homes are significantly lower than the mortgage payment of entry level homes in many areas across the state. For example, San Jose and San Francisco represent the top two metro areas in the country where the spread in cost between renting and owning a home with a mortgage is the widest. (Renting Is Usually Cheaper Than Owning, but Not Always — Here's How They Compare in the Nation's 50 Largest Metros, Feb. 12, 2024, available at https://www.lendingtree.com/home/mortgage/comparing-rent-vs-owning-a-home-in-nations-largest-metros/). In response to the re-introduction of this bill, the National Rental Home Council raises additional concerns, especially as it relates to the Los Angeles fires. The Council argues that this bill will "create restrictions rebuilding options for fire victims at the precise time state policy should be doing everything to facilitate reconstruction… In Altadena, 6,018 homes were destroyed by the Eaton Fire and this bill essentially dictates to Altadena residents with whom they can and cannot do business. When fire victims are desperate for housing options, cutting off a source of rebuilding capital would be a poor statement of housing policy in the wake of this unprecedented disaster."

While the opposition's concerns about the urgency of post-fire recovery are valid, the argument overstates the impact of this bill by characterizing it as an absolute restriction on rebuilding rather than a measure aimed at managing speculative acquisitions. The bill targets institutional investors rather than all rebuilding efforts, in an apparent effort to protect long-term residents rather than hinder reconstruction. It remains up to the Legislature to determine whether this bill will indeed advance those goals.

Additional considerations. As currently written, even if this measure were successful, there is nothing that would stop a business from purchasing 999 homes under one name, and then continuing to buy up additional homes as a different corporate entity. As noted by the Senate Committee on the Judiciary's analysis of last year's version of this bill, this bill might have another intended consequence – housing instability. A tenant who lives in a property that was acquired by the business entity in violation of the terms of the bill can end up losing their housing as the business entity will be forced to sell the home to an undefined third party entity. When the home is sold, the new purchaser may want to move into their property, thus leading to housing instability for the renter of the home.

Ultimately, the concerns about last year's bill (AB 2584, Lee) resulted in the authoring canceling its hearing before the Senate Committee on the Judiciary could hear the measure.

According to the Author

Corporations are buying up whole neighborhoods worth of housing inventory. First-time homebuyers are not able to compete with cash offers from these large corporate firms. By outbidding homebuyers and converting properties to rentals, these corporations are taking homeownership opportunities away from hard working Californians and exacerbating the scarcity of single-family homes. This bill will protect Californians' opportunities for stability and homeownership.

Arguments in Support

The American Federation of State, County and Municipal Employees, AFL-CIO, supports the measure:

AB 1240's proposed limitations on large business entities acquiring and leasing single-family homes are vital for several reasons that directly impact our members and the broader working-class community:

1. Housing Affordability: The unchecked acquisition of single-family homes by large corporate entities has driven up housing costs, making homeownership increasingly unattainable for working families. This bill will help to curb this trend by preserving opportunities for homeownership and stabilizing rental markets.
2. Community Stability: Corporate ownership often leads to absentee landlords, decreased community investment, and increased tenant instability. AB 1240 will help maintain the character and stability of neighborhoods by limiting the concentration of corporate-owned rental properties.
3. Protection of Workers: The rising cost of housing directly impacts our members' ability to afford basic necessities and maintain a decent standard of living. By addressing the corporate influence on the housing market, AB 1240 supports the economic well-being of working families.
4. Fair Housing Practices: Large scale corporate ownership can lead to unfair housing practices, and a lack of accountability. This bill provides a mechanism for the Attorney General to enforce the provisions by promoting fair housing practices.

Arguments in Opposition

The National Rental Home Council explains its opposition:

AB 1240 will have the effect of outlawing one class of home buyer from freely entering into a contract with another willing party for a home purchase. Thus the bill also disadvantages home sellers by preventing them from selling to a buyer of their choice. Given the scant overall institutional presence in the California single family rental home marketplace, this proposal seeks to legislate against a false narrative of expanding institutional ownership, not actual statistics.

Institutional owners of housing are able to bring rental housing products to the market more rapidly than some other potential rental property owners. In a high-cost housing market like California, more supply, and choice within that supply, should be an overriding public policy goal. The marketplace demand for rental housing in California is very strong, with many owners having occupancy rates consistently in excess of 95%. Our member companies bring choice to prospective renters who may wish to have a single-family home, versus a multifamily (or other) housing alternative. The occupancy rates of the single-family rental homes reflect the marketplace demand for choice in housing.

The California Apartment Association and the California Mortgage Bankers Association argue that the bill is misdirected:

Ownership of single-family homes by "business entities" in California is extremely limited, estimated at 0.15 of 1 percent. Admittedly, there were homes purchased by business entities during the 2007-2008 financial crisis, triggered by a housing bubble in the United States, which led to massive bank foreclosures of homes during that time. Instead of keeping homes boarded up and allowing neighborhoods to decline, banks sold the homes to business entities that maintained them for tenants.

Today, however, because of the high cost of homes in California, we do not see investment by "business entities" like we did in the mid 2000's.

Today business entities are moving away from the single-family home market. It may be a better approach for AB 1240 to focus on requiring these businesses to give tenants in the home the first right to purchase the home when the entity decides to sell. We believe this is a better focus for AB 1240 and may give more tenants the option to become homeowners.

FISCAL COMMENTS

According to the Assembly Appropriations Committee:

1. Possible costs (General Fund, special funds) to the Department of Justice (DOJ) of an unknown but potentially significant amount.  Actual costs will depend on whether the Attorney General pursues enforcement actions, and, if so, the level of additional staffing needed by DOJ to handle the related workload.  If DOJ hires staff to handle enforcement actions permitted by this bill, the department would incur significant costs, likely in the low hundreds of thousands of dollars annually, at a minimum.  If DOJ does not pursue enforcement as permitted by this bill, the department would not incur any costs.
2. Cost pressures (Trial Court Trust Fund, General Fund) of an unknown amount to the courts to adjudicate enforcement actions authorized by this bill. Actual costs will depend on the number of cases filed and the amount of court time needed to resolve each case. It generally costs approximately $1,000 to operate a courtroom for one hour. Although courts are not funded on the basis of workload, increased pressure on the Trial Court Trust Fund may create a demand for increased funding for courts from the General Fund. The fiscal year 2024-25 state budget provides $37.3 million ongoing General Fund to backfill declining revenue to the Trial Court Trust Fund.

VOTES

ASM JUDICIARY: 9-1-2

YES: Kalra, Bauer-Kahan, Bryan, Connolly, Essayli, Harabedian, Pacheco, Stefani, Zbur

NO: Dixon

ABS, ABST OR NV: Papan, Sanchez

ASM APPROPRIATIONS: 11-2-2

YES: Wicks, Arambula, Calderon, Caloza, Elhawary, Fong, Mark González, Hart, Pacheco, Pellerin, Solache

NO: Dixon, Tangipa

ABS, ABST OR NV: Sanchez, Ta

UPDATED

VERSION: February 21, 2025

CONSULTANT: Shiran Zohar / JUD. / (916) 319-2334 FN: 0000530

Date of Hearing: April 9, 2025

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Buffy Wicks, Chair

ABPCA Bill Id:AB 1240

Author:(Lee) – As Introduced Ver:February 21, 2025

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill prohibits a business entity that owns more than 1,000 single-family residential properties from purchasing any additional single-family properties and renting them out. The bill authorizes the Attorney General to enforce this prohibition through civil litigation.

FISCAL EFFECT:

1. Possible costs (General Fund, special funds) to the Department of Justice (DOJ) of an unknown but potentially significant amount.  Actual costs will depend on whether the Attorney General pursues enforcement actions, and, if so, the level of additional staffing needed by DOJ to handle the related workload.  If DOJ hires staff to handle enforcement actions permitted by this bill, the department would incur significant costs, likely in the low hundreds of thousands of dollars annually, at a minimum.  If DOJ does not pursue enforcement as permitted by this bill, the department would not incur any costs.
2. Cost pressures (Trial Court Trust Fund, General Fund) of an unknown amount to the courts to adjudicate enforcement actions authorized by this bill. Actual costs will depend on the number of cases filed and the amount of court time needed to resolve each case. It generally costs approximately $1,000 to operate a courtroom for one hour. Although courts are not funded on the basis of workload, increased pressure on the Trial Court Trust Fund may create a demand for increased funding for courts from the General Fund. The fiscal year 2024-25 state budget provides $37.3 million ongoing General Fund to backfill declining revenue to the Trial Court Trust Fund.

COMMENTS:

1. Purpose. According to the author:

Corporations are buying up whole neighborhoods worth of housing inventory. First-time homebuyers are not able to compete with cash offers from these large corporate firms. By outbidding homebuyers and converting properties to rentals, these corporations are taking homeownership opportunities away from hard working Californians and exacerbating the scarcity of single-family homes.

1. Background. California is in a serious housing crisis, with record low levels of homes available for purchase in the state. There are many factors that have contributed to the current crisis, but this bill takes aim at institutional investors – generally corporations or other business entities – that purchase hundreds or thousands of single-family homes and rent them out, rendering them unavailable for purchase by prospective individual homeowners.

This bill prohibits a business entity with an ownership interest in more than 1,000 single-family homes in its portfolio from purchasing and renting out any more single-family homes. Under the bill, this prohibition is enforceable by DOJ, which may recover civil penalties of $100,000 per violation, attorney’s fees, and other relief granted by the court. As detailed in the analysis of this bill by the Assembly Committee on Judiciary, institutional investors own a very small percentage of single-family homes in California, with applicable business entities making up less of 1% of home purchases in the state in 2023. The policy committee analysis also notes some practical challenges in enforcing the bill’s prohibitions – for example, a business entity could easily form multiple related corporate entities to purchase more than 1,000 homes. Regardless, by authorizing DOJ to bring civil enforcement actions, the bill may result in significant costs to the state, with actual costs depending on the number of actions brought and the amount of court time needed to adjudicate them.

1. Prior Legislation. AB 2584 (Lee), of the 2023-24 Legislative Session, was substantially the same as this bill. AB 2584 was referred to but not heard in the Senate Committee on Judiciary.

Analysis Prepared by: Annika Carlson / APPR. / (916) 319-2081

Date of Hearing: March 25, 2025

ASSEMBLY COMMITTEE ON JUDICIARY

Ash Kalra, Chair

ABPCA Bill Id:AB 1240

Author:(Lee) – As Introduced Ver:February 21, 2025

SUBJECT: Single-family residential real property: corporate entity: ownership

KEY ISSUE: SHOULD CALIFORNIA PROHIBIT certain business entities that have an interest in more than 1,000 single-family homes from purchasing and leasing any additional single-family homes?

SYNOPSIS

California is facing a housing crisis. The inventory of available homes—especially affordable entry-level homes—in the state is severely constrained. In tackling this issue, the Legislature has focused on increasing supply and maintaining home affordability, but with limited success. The decline in homeownership has resulted in a growing population of renters. As institutional investors acquire a larger number of homes, they may contribute to an increase in property prices, making it more challenging for individual households, especially first-time buyers, to enter the housing market. With their deep pockets, these institutional buyers can often outbid individual homebuyers, driving up prices in the process. This leaves first-time homebuyers struggling to compete in real estate markets where affordability is already a concern.

Recognizing the importance of homeownership for financial stability, this bill seeks to stymie the rise of corporate build or buy-to-rent model by prohibiting business entities with an interest in more than 1,000 single-family residential properties from purchasing another single-family residential property and leasing it out. The rise of corporate ownership of single-family homes is extremely limited in this state—the percentage of homes purchased by the “mega investors” this bill targets (i.e., those with more 1,000 single-family homes in their portfolio) was less than 1% of home purchases in 2024. According to the author, by prohibiting mega investors from buying and leasing more single-family homes, it clears a path for first time and working class homebuyers. The bill’s prohibition applies only to buying and leasing; this measure does not limit a business entity— regardless of the number of homes it already owns—from purchasing additional homes, so long as it does not rent them out. It is unclear what the policy rationale is for prohibiting purchase for rent but allowing purchases to just sit vacant or get “flipped” by institutional investors only to be sold at a markup to individual buyers. This measure is supported by the AIDS Healthcare Foundation, the American Federation of State, County and Municipal Employees, AFL-CIO, and the Santa Monica Democratic Club. Opposition includes the California Apartment Association, California Mortgage Bankers Association, the National Rental Home Council, and the California Association of Realtors.

SUMMARY: Prohibits business entities that own more than 1,000 single-family residential properties from purchasing any additional single-family properties and leasing them out. Specifically, this bill:

1. Defines “business entity” as any association, company, firm, partnership, corporation, limited liability company, limited liability partnership, real estate investment trust, or other legal entity, and that entity’s successors, assignees, or affiliates.
2. Expressly excludes from the definition of “business entity” any of the following:
   1. A nonprofit corporation or other nonprofit legal entity.
   2. A person or entity primarily engaged in the construction of housing.
3. Defines “single-family residential property” as real property improved with one dwelling unit on it for which a certificate of occupancy has been issued.
4. Prohibits a business entity that has an interest in more than 1,000 single-family residential properties from purchasing, acquiring, or otherwise obtaining an interest in another single-family residential property and subsequently lease the property.
5. Authorizes the Attorney General to bring a civil action in the name of the people of the State of California for a violation of this bill.
6. Establishes that if the Attorney General prevails in a civil action, the court must order the following relief:
   1. Reasonable attorney’s fees and costs;
   2. The business entity to pay a civil penalty of one hundred thousand dollars ($100,000) for each violation;
   3. The business entity to sell the property to an independent third party within one year of the date that the court enters the judgment; and
   4. Any other relief the court deems appropriate.

EXISTING LAW:

1. Defines “business entity” as any organization or enterprise operated for profit, including but not limited to a proprietorship, partnership, firm, business trust, joint venture, syndicate, corporation or association. (Government Code Section 82005.)
2. Defines “business entity” as a sole proprietorship, partnership, corporation, association or other group, however organized and whether or not organized to operate at a profit, but does not mean a financial institution organized, chartered, or holding a license or authorization certificate under a law of this state or the United States to make loans or extend credit and subject to supervision by an official or agency of this state or the United States, nor the parent of any such financial institution, nor any subsidiary of any such financial institution or parent. (Civil Code Section 1799 (b).)
3. Defines “single-family residential property” as one of the following:
   1. Real property improved with one to four dwelling units.
   2. A unit in a residential stock cooperative, condominium, or planned unit development.
   3. A mobilehome or manufactured home when offered for sale or sold through a real estate license, as provided.
   4. A qualified ownership interest in real property subject to an agreement providing the owner the right to occupy one to four dwelling units on that property. (Civil Code Section 1670.12 (a)(2).)
4. “Dwelling unit” means a structure or the part of a structure that is used as a home, residence, or sleeping place by one person who maintains a household or by two or more persons who maintain a common household. (Civil Code Section 1940 (c).)

FISCAL EFFECT: As currently in print this bill is keyed fiscal.

COMMENTS: California is facing a housing crisis. The inventory of available homes—especially of affordable entry-level homes—is severely constrained. In tackling this issue, the Legislature has focused on increasing supply and maintaining home affordability, but with limited success. The decline in homeownership has resulted in a growing population of renters. Recognizing the importance of homeownership for financial stability, this bill seeks to stymie the rise of corporate “buy/build-to-rent” model by prohibiting business entities with large single-family home portfolios from purchasing and renting out property in the state. According to the author:

Corporations are buying up whole neighborhoods worth of housing inventory. First-time homebuyers are not able to compete with cash offers from these large corporate firms. By outbidding homebuyers and converting properties to rentals, these corporations are taking homeownership opportunities away from hard working Californians and exacerbating the scarcity of single-family homes. This bill will protect Californians’ opportunities for stability and homeownership.

The housing affordability crisis. Housing affordability is a primary concern of the California Legislature—and rightfully so. According to the California Association of Realtors’ Traditional Housing Affordability Index (HAI), California hit a peak high affordability index of 56 percent in 2012. Ten years later, however, only 21 percent of California households could afford to purchase the median-priced home of $790,020, down from 27 percent at the end of 2021. (California Association of Realtors Housing Affordability Index, Data for the 4^th quarter of 2022, available at https://www.car.org/marketdata/data/haitraditional.) A major cause of our housing crisis is the mismatch between the supply of housing and the demand for housing. In 2022, the Statewide Housing Plan adopted by the Housing and Community Development Department (HCD) found that California needs approximately 2.5 million units of housing, including one million units that are affordable to lower income households, in order to address this mismatch. (HCD, California Statewide Housing Plan: A Home for Every Californian (March 2022), available at https://storymaps.arcgis.com/stories/94729ab1648d43b1811c1698a748c136.) That would require production of over 300,000 units a year, including over 120,000 units a year of housing affordable to lower income households. By contrast, housing production in the past decade has been under 80,000 units per year. (HCD, Addressing a Variety of Housing Challenges, available at https://www.hcd.ca.gov/policy-and-research/addressing-variety-housing-challenges (last accessed Mar. 20, 2025).)

The decline of owner-occupancy rates in California. The lack of affordable housing, likely in combination with other interrelated factors, such as demographic shifts delaying in life-cycle milestones such as marriage and childbearing (or the decision to forego those milestones altogether), has resulted in a decline in home ownership. In 2022, California’s homeownership rate—the percentage of California homes owned by their occupants—stood at 55.3%, one percent higher than the preceding year. (U.S. Census Bureau, Homeownership Rate for California, available at https://fred.stlouisfed.org/series/CAHOWN.) This rate is down from a high of 60.2 percent in 2006, at the peak of the housing bubble, and represents a trend of decreasing home-ownership since the Great Recession. (Ibid.) The decline was even more stark for younger Californians aged 35–45. For that group, the share who owned a home declined from 49.5 percent to 39.7, almost 10 percentage points from 2000 to 2021. (Shoag, et al., Terner Center for Housing Innovation, U.C. Berkeley, The First Step Is The Hardest: California’s Sliding Homeownership Ladder (May 2023), available at https://ternercenter.berkeley.edu/wp-content/uploads/2023/05/Homeownership-Ladder-May-2023-Final.pdf.)

While more pronounced in California, this reflects a national trend. According to census data, between 2007 and 2017, the United States added less than 1 million households in owner-occupied homes, but 6.5 million in renter-occupied homes. The national homeownership rate bottomed out at 62.9 percent in 2016, down from a high of 69 percent in 2005. (U.S. Census Bureau, Homeownership Rate in the United States, available at https://fred.stlouisfed.org/series/RHORUSQ156N.) The decline in homeownership has resulted in a corresponding increase in rental demand, and a corresponding untenable increase in rental rates. The majority of Californian renters—more than 3 million households—pay more than 30 percent of their income toward rent, and nearly one-third—more than 1.5 million households—pay more than 50 percent of their income toward rent. (https://www.hcd.ca.gov/policy-and-research/addressing-variety-housing-challenges.) Those renting are increasingly looking for single-family residences. An estimated 39 percent of rental housing units in the United States are single-family dwellings. (Real Estate Consulting, Single-Family Rental Housing – Institutional Opportunities (August 9, 2022) available at https://www.rclco.com/publication/prea-quarterly-single-family-rental-housing-institutional-opportunities/.)

The corporate single-family rental makes up a tiny share of rental properties. The overwhelming majority of single-family rentals are owned by smaller landlords. In June 2021, the Urban Land Institute reported that small-scale investors own 97 percent of the nation’s single-family rental inventory, meaning that the share of institutional investors is just three percent. (Congressional Research Service, Single-Family Market Rents and Institutional Investors, October 3, 2022, available at https://crsreports.congress.gov/product/pdf/IF/IF12225.) This report defined “institutional investors” as those owning more than 2,000 units. According to a 2022 report by the National Association of Realtors, institutional buyers—which they defined as companies, corporations, or limited liability companies (LLCs) regardless of the number of units owned—made up 13 percent of the residential sales market in 2021, with the median purchase price of institutional buyers typically 26 percent lower than the states’ median purchase prices. (National Association of Realtors, Impact of Institutional Buyers on Home Sales and Single Family Rentals (May 2022), https://realtytimes.com/real-industry-news-articles/item/1044871-new-nar-report-impact-of-institutional-buyers-on-home-sales-and-single-family-rentals.)

In California, the percentage of institutional investors is tiny. According to a March 6, 2024 Roofstock report, business entities that have more than 500 homes in their portfolio represented less than 1% of California home purchases in 2023. In other words, even in the absence of legislation, the group that this bill is targeting purchased only 0.8% of all single-family homes sold in the state in 2023. A newly released 2025 report shows that the number dipped even further in 2024.

Though currently small, the author points to the growing national trend of the corporate build/buy-to-rent single-family home model, the fluctuation in interest rates, and the serious concerns it raises about home affordability and availability—particularly in a market with constrained inventory.

Corporate landlords. Corporate ownership of single-family homes is a newer phenomenon. The increase in institutional investors began during the Great Recession, when housing prices dropped precipitously and credit tightened. (Lambie-Hanson, L. et al., Leaving Households Behind: Institutional Investors and the U.S. Housing Recovery (2019), available at https://www.philadelphiafed.org/-/media/frbp/assets/working-papers/2019/wp19-01.pdf.) During the financial crisis, investors bought foreclosed properties, often at a discount, with institutional buyers joining the usual cash investors. (Francesca Mari, New York Times, A $60 Billion Housing Grab By Wall Street (Mar. 4, 2020), available at New York Times, https://www.nytimes.com/2020/03/04/magazine/wall-street-landlords.html.) Institutional buyers are entities with substantial financial resources, such as real estate investment trusts (REITs), private equity firms, and hedge funds. Unlike individual homebuyers who depend on federally-backed financing to purchase homes, institutional investors can purchase properties with cash. They were thus uniquely situated to purchase large numbers of foreclosed properties that might have not qualified for federally-backed loans. As hundreds of thousands of homes went into foreclosure, the federal government sought to stabilize housing prices by increasing demand for the homes by creating incentives for private investors to make bulk purchases. (Alana Semuels, When Wall Street Is Your Landlord, The Atlantic, (February 13, 2019) available at https://www.theatlantic.com/technology/archive/2019/02/single-family-landlords-wall-street/582394/.) Thus, institutional investors’ entry into the market for single-family residences came against the backdrop of staggering foreclosure rates, economic uncertainty, and government incentives.

The rate of investor purchases surged again during the COVID-19 pandemic. In the first quarter of 2022, investor purchases of single- family homes averaged 28 percent per month, compared with 19 percent the previous year: significant increases from the average of 16 percent between 2017 and 2019. (Joint Center for Housing Studies of Harvard University, State of the Nation’s Housing (2022), available at https://www.jchs.harvard.edu/state-nations-housing-2022.)

Institutional investors had long avoided the single-family market because of the challenge of managing dispersed properties. (Mari, New York Times, https://www.nytimes.com/2020/03/04/magazine/wall-street-landlords.html.) Digital technologies, including improved data and analytics, however, have transformed the single-family rental market. (Fields, D., Vergerio, UC Berkeley, Corporate landlords and market power: What does the single-family rental boom mean for our housing future? (2022), available at https://escholarship.org/uc/item/07d6445s.) Technology has made both purchasing and managing dispersed rental properties more efficient and profitable. Corporate owners can use digital tools to acquire property quickly and can use other tools to screen applicants, accept payments, manage maintenance requests, and gather data on rental markets.

Within regions across the country, researchers find that large corporate investors buying single-family rentals and rent-to-own units tend to concentrate their purchases at the neighborhood level, primarily in “low income, historically non-white neighborhoods that have suffered from disinvestment, but where gentrification or real estate cycle dynamics predict medium term price increases.” (Raymond, E., et al., Federal Reserve Bank of Atlanta., Large corporate buyers of residential rental housing during the COVID19 pandemic in three southeastern metropolitan areas (2022), available at https://www.atlantafed.org/community-development/publications/discussion-papers/2016/04-corporate-landlords-institutional-investors-and-displacement-2016-12-21.) In a zero-sum housing environment, where demand far exceeds supply, resulting in higher home prices, corporate winners often means individual losers.

In addition to depriving individual buyers of the opportunity to purchase homes, the rise of the corporate home ownership poses other problems. Corporate landlords are usually detached from the communities where the rental properties are located, and may be more motivated by profit-maximizing than the average “mom-and-pop” landlord. A 2017 study published by the Federal Reserve Bank of Atlanta found that corporate landlords, especially those which are large institutional investors, were far likelier than other owners to evict their tenants. (Raymond, E., et al., FRB Atlanta Community and Economic Development Discussion Paper No. 2016-4, Corporate Landlords, Institutional Investors, and Displacement: Eviction Rates in Singlefamily Rentals (2016), available at https://ssrn.com/abstract=2893552.) In 2018, a Reuters special investigation of Invitation Homes, a creation of private equity giant Blackstone Group LP, found after “interviews with scores of the company’s tenants in neighborhoods across the United States, the picture that emerges isn’t as much one of exceptional service as it is one of leaky pipes, toxic mold, nonfunctioning appliances, and months-long waits for repairs.” (Michelle Conlin, Reuters, Spiders, sewage and a flurry of fees – the other side of renting a house from Wall Street (July 27, 2018), available at https://www.reuters.com/investigates/special-report/usa-housing-invitation/.) In 2024, Attorney General Bonta announced a $3.7 million settlement with Invitation Homes to resolve allegations that it violated California’s rent cap law. (Liam Dillon, Los Angeles Times, Nation’s largest single-family home landlord to pay $3.7 million in California rent-gouging case (January 8, 2024), available at https://www.latimes.com/homeless-housing/story/2024-01-08/invitation-homes-tenant-rent-gouging-settlement.)

This bill prohibits business entities with an interest in more than 1,000 single-family homes in their portfolio from purchasing and leasing out any additional single-family homes. The prohibition applies to a business entity that owns more than 1,000 units anywhere, as it is intended to target the country’s “mega investors” regardless of how many homes they may own in the state. While there is no universally accepted definition of institutional ownership, the 1,000 figure is commonly used to describe the largest investors in the single-family rental market. (See Thomas Malone, The New Normal? Single-Family Investor Activity Remains Steady in Q3, CoreLogic Intelligence (blog), CoreLogic, December 8, 2022, https://www.corelogic.com/intelligence/the-new-normal-single-family-investor-activity-remains-steady-in-q3.)

Thus, if a business entity owns 1,000 homes elsewhere, it is prohibited from purchasing and leasing even one additional home in California. The bill sets a hard cap of 1,000 homes: if a business entity clears a certain number of homes from its portfolio so that it has an interest in fewer than 1,000 homes, it can later purchase and rent out more—up until the 1,000 single-family home cap.

Further, the bill’s prohibition applies only to buying and leasing; this measure does not limit a business entity, regardless of the number of homes it already owns, from purchasing additional homes, so long as it does not rent them out. It is unclear what the policy rationale is for prohibiting purchase for rent but allowing purchases to just sit vacant or get “flipped” by institutional investors only to be sold at a markup to individual buyers.

Opposition’s concerns. In opposing last year’s bill (AB 2584, Lee, 2024), the National Rental Home Council argued the concentration of institutional capital in low-income areas as a societal positive: corporate rentals provide a desired product for those wanting the advantages of single-home living without the burden. They also pointed to data suggesting that rents of mid-tier single-family rental homes are significantly lower than the mortgage payment of entry level homes in many areas across the state. For example, San Jose and San Francisco represent the top two metro areas in the country where the spread in cost between renting and owning a home with a mortgage is the widest. (Renting Is Usually Cheaper Than Owning, but Not Always — Here’s How They Compare in the Nation’s 50 Largest Metros, Feb. 12, 2024, available at https://www.lendingtree.com/home/mortgage/comparing-rent-vs-owning-a-home-in-nations-largest-metros/).

In response to the re-introduction of this bill, the National Rental Home Council raises additional concerns, especially as it relates to the Los Angeles fires. The Council argues that AB 1240 will “create restrictions rebuilding options for fire victims at the precise time state policy should be doing everything to facilitate reconstruction… In Altadena, 6,018 homes were destroyed by the Eaton Fire and AB 1240 essentially dictates to Altadena residents with whom they can and cannot do business. When fire victims are desperate for housing options, cutting off a source of rebuilding capital would be a poor statement of housing policy in the wake of this unprecedented disaster.”

While the opposition’s concerns about the urgency of post-fire recovery are valid, the argument overstates the impact of AB 1240 by characterizing it as an absolute restriction on rebuilding rather than a measure aimed at managing speculative acquisitions. The bill targets institutional investors rather than all rebuilding efforts, in an apparent effort to protect long-term residents rather than hinder reconstruction. It remains up to the Legislature and this Committee to determine whether this bill will indeed advance those goals.

Additional considerations. As currently written, even if this measure were successful, there is nothing that would stop a business from purchasing 999 homes under one name, and then continuing to buy up additional homes as a different corporate entity. As noted by the Senate Committee on the Judiciary’s analysis of last year’s version of this bill, this bill might have another intended consequence – housing instability. A tenant who lives in a property that was acquired by the business entity in violation of the terms of the bill can end up losing their housing as the business entity will be forced to sell the home to an undefined third party entity. When the home is sold, the new purchaser may want to move into their property, thus leading to housing instability for the renter of the home.

Ultimately, the concerns about last year’s bill (AB 2584, Lee) resulted in the authoring canceling its hearing before the Senate Committee on the Judiciary could hear the measure.

ARGUMENTS IN SUPPORT: The American Federation of State, County and Municipal Employees, AFL-CIO, supports the measure:

AB 1240’s proposed limitations on large business entities acquiring and leasing single-family homes are vital for several reasons that directly impact our members and the broader working-class community:

• Housing Affordability: The unchecked acquisition of single-family homes by large corporate entities has driven up housing costs, making homeownership increasingly unattainable for working families. This bill will help to curb this trend by preserving opportunities for homeownership and stabilizing rental markets.
• Community Stability: Corporate ownership often leads to absentee landlords, decreased community investment, and increased tenant instability. AB 1240 will help maintain the character and stability of neighborhoods by limiting the concentration of corporate-owned rental properties.
• Protection of Workers: The rising cost of housing directly impacts our members' ability to afford basic necessities and maintain a decent standard of living. By addressing the corporate influence on the housing market, AB 1240 supports the economic well-being of working families.
• Fair Housing Practices: Large scale corporate ownership can lead to unfair housing practices, and a lack of accountability. This bill provides a mechanism for the Attorney General to enforce the provisions by promoting fair housing practices.

ARGUMENTS IN OPPOSITION: The National Rental Home Council explains its opposition:

AB 1240 will have the effect of outlawing one class of home buyer from freely entering into a contract with another willing party for a home purchase. Thus the bill also disadvantages home sellers by preventing them from selling to a buyer of their choice. Given the scant overall institutional presence in the California single family rental home marketplace, this proposal seeks to legislate against a false narrative of expanding institutional ownership, not actual statistics.

Institutional owners of housing are able to bring rental housing products to the market more rapidly than some other potential rental property owners. In a high-cost housing market like California, more supply, and choice within that supply, should be an overriding public policy goal. The marketplace demand for rental housing in California is very strong, with many owners having occupancy rates consistently in excess of 95%. Our member companies bring choice to prospective renters who may wish to have a single-family home, versus a multifamily (or other) housing alternative. The occupancy rates of the single-family rental homes reflect the marketplace demand for choice in housing.

The California Apartment Association and the California Mortgage Bankers Association argue that the bill is misdirected:

Ownership of single-family homes by “business entities” in California is extremely limited, estimated at 0.15 of 1 percent. Admittedly, there were homes purchased by business entities during the 2007-2008 financial crisis, triggered by a housing bubble in the United States, which led to massive bank foreclosures of homes during that time. Instead of keeping homes boarded up and allowing neighborhoods to decline, banks sold the homes to business entities that maintained them for tenants.

Today, however, because of the high cost of homes in California, we do not see investment by “business entities” like we did in the mid 2000’s.

Today business entities are moving away from the single-family home market. It may be a better approach for AB 1240 to focus on requiring these businesses to give tenants in the home the first right to purchase the home when the entity decides to sell. We believe this is a better focus for AB 1240 and may give more tenants the option to become homeowners.

REGISTERED SUPPORT / OPPOSITION:

Support

AIDS Healthcare Foundation

American Federation of State, County and Municipal Employees, AFL-CIO

Santa Monica Democratic Club

Opposition

California Apartment Association

California Association of Realtors

California Mortgage Bankers Association

National Rental Home Council

Analysis Prepared by: Shiran Zohar / JUD. / (916) 319-2334