image courtesy casey martin / dreamstime
Looking back, it’s astonishing how quickly Memphis went from a city of homeowners to a city of renters. A key driver of the change were hedge funds and mega-companies, which bought thousands of houses and got tax breaks of more than $10 million a year in the process.
Prior to 2016-2017, mega-investors had not bought any homes in Memphis, but in those years alone, half of the 24,000 houses sold here were investor sales that included behemoth institutional actors. They targeted Memphis for one reason: low acquisition costs paired with high rent potential. Decades of disinvestment, redlining, and economic segregation created neighborhoods where homes could be bought for a fraction of what they’d cost in other cities.
According to Austin Harrison, a professor of urban studies at Rhodes College and an expert on housing, these “whale investors” created a permanent renter class in Memphis, putting the American Dream of home ownership out of reach for many Memphians and “we’re never going to get it [housing stock] back.”
City government officials and Harrison explained the origins of the problem this way in the State of Memphis Housing 2020: Rising to Respond to Crisis: 1) the rise of mortgage market deregulation leading to the “innovation” of the subprime mortgage loan product; 2) targeting of subprime loans in predominantly African-American neighborhoods; 3) the relationship between foreclosures and vacant properties; and 4) the increase in foreclosed single-family houses owned by Memphis lending institutions — a key factor that fueled the Memphis rental boom.
When ownership is distant — managed through call centers and layered LLCs — accountability evaporates, houses deteriorate, neighborhoods suffer, and tenants pay the price.
The impact was profound. In 2010, 52 percent of houses were owned by the families living in them, but by 2022, that was down to 46 percent. Over the same time period, renter households swelled from 47.9 percent to 54 percent.
These out-of-town companies bought houses by the thousands — 7,000 just in 2019-2020, often outbidding first-time homebuyers with above-asking-price cash offers, and then charging rents that strained already-tight household budgets.
Along the way, these multi-national groups and hedge funds turned Memphis into the fastest-growing rental market in America and they were rewarded with tax breaks for doing it. The tax breaks came in the form of their homes’ assessment at the residential property tax rate of 25 percent rather than a commercial rate of 40 percent.
The assessor’s office has not calculated the amount of new property tax revenues that could be produced by the change in assessment category; however, taking a conservative approach with just 7,000 single-family houses appraised at an average of $150,000 would mean about $5 million in new revenue for City of Memphis government and $5.4 million for Shelby County government.
Maybe help is finally on the way. Two local Republican legislators — Senator Brent Taylor and Representative Tom Leatherwood — have filed a bill with the Tennessee Legislature to assess homes owned by these large institutional firms at the commercial rate.
In addition to their bill, there is also the “Homes Not Hedge Funds” act proposed by two Democratic legislators in Nashville, where 21 percent of houses in some neighborhoods were bought by corporate investors between 2018-2022. Their bill failed to pass last year, but it is to be reintroduced in the current session. It would prohibit corporate entities from owning more than 100 single-family homes in counties with populations of more than 150,000.
Deep-pocketed lobbyists are generally expected to succeed in killing bills they oppose in our Republican super-majority legislature, but this time, a change is also backed by President Trump. In January, he issued an executive order limiting the purchase of homes by Wall Street investors, and the White House said these firms are offering more than asking prices in a bid to have sub-market control.
Harrison’s research confirms it with sub-markets targeted here around specific schools where they can control prices and set eviction standards.
Evictions are big profit centers. For example, Cerberus Capital Management owns more than 1,800 single-family homes in Memphis and its property manager, FirstKey Homes, has a record of filing evictions in the thousands. Roughly 20 percent of renters faced eviction in 2019, which resulted in court judgements for their overdue rent along with tacked-on penalties.
Meanwhile, these properties with their absentee, out-of-town owners rack up property code violations at a higher rate than those owned by locally owned rental companies, and their poor maintenance records contribute to the decline of neighborhoods.
Changes in state and federal government would yield important results although much of the damage has been done. It is likely to take many years to increase the homeownership rate in Memphis because the thousands of homes bought by these mega-investors are unlikely to be put up for sale as they wait for their profits to climb.
As a result, they remove thousands of homes from the ownership pipeline. The result is fewer first-time buyers, fewer owner-occupied neighborhoods, more rent extracted, less equity built, and more instability and less generational wealth. With homeownership strongly linked to economic stability and wealth-building, the large-scale investors have precluded much of Memphis from this path to asset-building.
In other words, they don’t just buy houses. They buy the future options away from Memphis families, particularly Black families, already locked out of wealth-building. The pitch by these large investors is familiar. They promise professionalism, efficiency, and better management. In reality, renters get the opposite.
When ownership is distant — managed through call centers and layered LLCs — accountability evaporates, houses deteriorate, neighborhoods suffer, and tenants pay the price.
If they are going to own thousands of homes in Memphis, then Memphis should not be seen as a market to exploit. It should also be seen as their community, and communities like ours have expectations and they should pay their fair share of taxes to support it.
Tom Jones is the principal of Smart City Consulting, which specializes in strategic communications, public policy development, and strategic planning. He tends the 20-year-old Smart City Memphis blog and is an author with experience in local government. He can be reached at tjones@smartcityconsulting.com
