Zillow Home Sales Draw Congressional Scrutiny

Zillow’s plans to sell a large portfolio of single-family homes to institutional investors is drawing attention from Congress. Senators Tina Smith (D-MN) and Sherrod Brown (D-OH) are raising concerns that these investors will turn the homes into rental properties – a move that could potentially leave local homebuyers without affordable options, and renters with poorly managed properties.

Zillow plans to sell roughly 7,000 homes it already owns or has under contract through its home-flipping business, called Zillow Offers. The house-flipping business has, by any measure, been a failure. Zillow expects to lose about 5% to 7% on the failed venture. The institutional investors who are looking to purchase the properties are accumulating huge portfolios of single-family rental homes.

Despite the allure of “house-flipping” that is shown on HGTV, buying a run-down home on the cheap, renovating it quickly, and selling it for a profit is not a sustainable business model. Supply chain issues and labor shortages during the pandemic mean it’s more expensive and takes longer to turn run-down homes into desirable purchases. Zillow itself estimates that it will lose over half a billion dollars in value on the houses it owns.

A fair percentage of the Zillow homes (almost 30%) are being sold to Pretium Partners, according to the Wall Street Journal. Other investment groups include American Homes 4 Rent and Invitation Homes.

Depending on how many of the Zillow homes are sold in individual markets, there could be some impact on operators of well-run affordable apartments, such as owners of Low-Income Housing Tax Credit properties. However, since the homes owned by Zillow are fairly spread out around the country, significant local impacts are unlikely.