Affordable Home Ownership, Not Corporate Landlords

The appeal of suburban living has historically been, and continues to be, home ownership. So why are there so many corporate landlord apartment rentals being built in McHenry rather than single-family homes to own?

The complex answer is in 2012, Fannie Mae unloaded thousands of homes that were foreclosed upon during the 2008 housing crisis in a single transaction for the intended purpose of stimulating demand. These massive housing portfolios were purchased by “institutional investors” and marked the beginning of the rise of the corporate landlord. In the subsequent years, investors realized the potential of having a continuous stream of income from rental units  and mass-purchased available single-family homes. For reference, in 2022, one in every four homes sold across the United States was purchased by an institutional investor. Seeing the potential for massive profits, private equity and Wall Street then partnered with developers to construct new multilevel apartment rental structures and entire new neighborhoods of build-to-rent (BTR) apartment rental homes. These corporate landlords then began aggressively approaching municipalities with the funding to purchase large amounts of land to build their rental empire and add to their growing portfolio. And that is where we are now.

The simple answer is McHenry has the authority through zoning to create whatever housing market it wants so if these corporate landlords are allowed to build here, it is because the City wants them here. Residents can speculate why the City would want them here, but since 2021, 878 apartment rental units across three locations have broke ground and are in various stages of construction or completion.

And McHenry came dangerously close to having even more corporate landlord apartment rentals. The day before the 2023 consolidated election, the Mayor received approval from Council to enter into a standstill agreement with corporate landlord Shodeen for the exclusive right to develop large parcels of land in the Downtown District. Residents would later find out develop large parcels of land meant the addition of 887 apartment rental units across multiple multilevel apartment structures centered around Green Street. This proposal was ultimately defeated (read more about that HERE) but is a good indication of the direction the Mayor wants to go, as he is on record multiple times not only supporting Shodeen but publicly berating Council members who oppose working with them.

The opposing view on apartment rentals from corporate landlords is the largest difference between the Mayor and myself, with the most recent example from the December 16th, 2024 City Council meeting. At that meeting, Redwood Living, an Ohio-based build-to-rent developer & property management company, requested annexation of 122 acres of land on the southeast corner of Chapel Hill Road and IL-120 for the purpose of building 177 corporate landlord apartment homes with an average monthly rent of $2,650 (which is $31,800 a year). Redwood Living currently has over 20,000 rental homes in their investment portfolio across nine states. 

Because annexation of land was first required to proceed, a supermajority of six out of eight “yes” votes was needed, with the seven members of Council and the Mayor voting. Unfortunately, we were unable to stop this development at the annexation stage, with only two “no” votes and the Mayor casting the deciding “yes” vote to annex the land, clearing the path for an entire neighborhood of corporate landlord apartment homes coming soon to McHenry.

When a corporate landlord owns an entire neighborhood of rental homes in a community, that is one less neighborhood where single-family home ownership can exist. Build-to-rent developments have a unique effect on a community because rental neighborhoods simultaneously decrease the value of the surrounding properties while also increasing the price of single-family homes elsewhere for purchase by creating an overly competitive ownership market due to the increasing scarcity of available and affordable homes for purchase versus rent. This creates a housing market that prices an entire generation out of home ownership and forces typically younger people and would-be first time homeowners into becoming permanent renters, resulting in a significant transfer of wealth from individuals to corporations.

The City should be dictating to developers what the residents want, not allowing corporate landlord developers who overwhelming do not live in the community they develop to tell us what they think we need. Residents overwhelming want what used to be called “starter homes” - modest size 1,000 to 1,500 square foot homes. Ranch-style single family homes are particularly in demand for both first-time homeowners and senior citizens looking to downsize to a home that will be safe and accessible as they age. Corporate developers tell us we need more rentals though because that’s how the market is trending but that is only true, in that, they are artificially driving the demand for rentals by no longer building single family homes to own. The reality is the demand only exists because of the market they have created and the municipalities that have allowed them to do this.

There are real reasons why building homes is more expensive now, including rising labor and supplies costs and greater bond regulations. There are real reasons why people cannot afford homes now, including wages that have not kept pace with inflation and higher than the previous decades mortgage rates (although significantly lower than the 30-year mortgage rates of the early 1980s that hit as high as 18.63%). This does not mean a City should open the door to corporate landlords though.

It is important to remember that open land does not have to be developed, it can be developed. Markets change so if the majority of the current options for development are from corporate landlords whose sole incentive is continued profit streams versus single-family home ownership builders, delaying development is a viable option because once a corporate landlord gets a foothold on the local housing market, they do not leave.

These developments are not a solution to the affordable housing shortage, they are the driver of the affordable housing shortage. They are also the primary driver of inflation. Corporate landlords raise rent and fees at much more aggressive rates than other types of landlords. Inflation is measured by the Consumer Price Index (CPI), with housing prices, both rental and ownership, included in the largest component of the CPI. When housing prices increase, inflation increases. When inflation increases, interest rates increase. When interest rates increase, consumers spend less. When consumers spend less, the economy suffers. When the economy suffers, a recession hits. When a recession hits, unemployment increases. When unemployment increases, there are a greater number of people defaulting on their mortgage. When people default on their mortgage, they lose their homes. These homes are now more likely to be purchased by institutional investors. And the cycle continues.

Communities across the country are beginning to realize how damaging these corporate landlords are to their City and McHenry needs to join them and create a housing market that prioritizes people not corporations.