Amid an ongoing housing shortage and rapid price appreciation, Los Angeles city lawmakers are now searching for ways to thwart iBuyers in their city.
The effort stems from a motion, which Councilwoman Nury Martinez penned in late October, that describes L.A. as among the “top most unaffordable cities” in the country. The motion goes on to blame iBuyers in part for the area’s housing woes.
“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 argues. “These companies primarily target affordable, single-family homes and compete to buy up as much inventory as possible, flip them, and then sell them for a profit.”
The Los Angeles City Council approved the motion on Friday, according to LAist.
The motion ultimately directs the city attorney and other officials to “report back with recommendations on strategies the city can use to prevent large tech and private equity firms from engaging in speculative practices that involve purchasing affordable, predominantly single family housing.”
Inman reached out to Martinez Friday evening and will update this story with any response.
In a statement to Inman Friday, an Opendoor spokesperson said that the company is “creating a modern real estate experience that allows consumers to buy, sell and move at the tap of a button.”
“Leveraging our technology and expertise, we’re eliminating the friction consumers have been enduring in the traditional real estate transaction for decades at a cost less than a traditional transaction,” the statement added.
For the time being, it’s unclear how L.A.’s effort might play out, or what strategies city officials might land on to counter iBuyers. Institutional buyers have been purchasing homes for years — since long before iBuying emerged — and so far the practice remains legal.
On the other hand, Los Angeles has proven to be resourceful when it comes to regulating large companies’ participation in the housing market. For instance, in 2018 the city began cracking down on short-term rentals from companies such as Airbnb. Among other things, the short-term rental rules required owners to register their units with the city, pay a fee and limit how long they make units available.
What’s even less clear is how much impact any iBuying rules might have on L.A.’s notoriously high housing costs.
Though iBuying has become controversial among consumers in recent months, with some blaming it for housing shortages, both iBuyers and independent analysts have repeatedly said that the practice represents a small slice of the overall housing market. In other words, iBuying’s impact on supply and pricing is likely limited. Unlike other institutional buyers, some of which purchase homes to rent out, iBuyers’ success also hinges on quickly relisting homes, meaning the practice’s long-term impacts on housing supply are going to differ from other investors such as short- and long-term landlords.
When it comes to shortages, most analysts have ultimately pointed to a prolonged period of under building as well as demographic shifts — for example a large cohort of millennials reaching their 30s — as major causes of today’s housing crunch.
It’s also notable that between the time that L.A.’s motion was written and Friday’s vote, Zillow — which the motion explicitly calls out — announced plans to get out of the iBuying business altogether.
Other iBuyers remain active, including in L.A. In Redfin’s case, the company began making cash offers in America’s second largest city in early 2019. Opendoor followed suit later that year. Despite those moves, though, L.A. represents something of a unique challenge for iBuyers; the city is significantly more expensive than other iBuyer hubs such as Phoenix, and at the same time, the housing stock is older and more varied.
In any case, the willingness of L.A.’s lawmakers to take on iBuying indicates that even as the business evolves and sheds participants (again, Zillow) the controversy over institutional buyers is not going away.