Kristy Totten: Welcome to “San Diego News Fix: The Backstory,” where we take you behind the scenes in our newsroom to show you how we got the story and how decisions are made.
Today, we’re ed by Jeff Light, Lauryn Schroeder, Kristina Davis and Sam Schulz to talk about the surge in investors purchasing homes in San Diego County.
Jeff Light: Thank you, Kristy. So, Lauryn Schroeder, you’ve got this terrific story coming out this weekend that you put together with Greg Moran about investor money in the local housing market. It’s a fascinating look, and I thought maybe we should start with you talking about where stories like this come from. How do you get started on something like this? And what was the origin of this inquiry?
Lauryn Schroeder: Sure. Greg Moran and I have worked together on previous stories, and a lot of those stories hinge on what’s going on on a granular level in the city of San Diego or in the county or in pockets of different neighborhoods throughout the county. We had seen a lot of stories talking about investors purchasing a large percentage of the homes and properties that are available for sale, and we wanted to do something similar to that.
A lot of that data is available, but it doesn’t show you who’s buying the properties, what investment companies are buying them, and where – specifically – those are. It’s usually only broken down by ZIP code. So, we went directly to our own county, we collected a data set of all homes and properties by parcel number that were sold in a given timeframe, and we analyzed it that way. We did drill down by ZIP code, but we looked more specifically at individual neighborhoods inside those ZIP codes.
Jeff Light: And so, broadly, what did you find? What is going on with investors? And did you see any patterns? Is it happening in some places more than others? And who are these people?
Lauryn Schroeder: We did find that San Diego, at least the city of San Diego, is pretty on trend with the national numbers that we were seeing, where investment companies and corporations are buying about 8 percent of the properties that are available for sale. And in of what we found on top of that, it was kind of interesting.
We saw the top ZIP codes of where the sales are happening kind of showcased two prime examples of the problem: On one end, you have a lot of the homes being bought up in La Jolla, in coastal areas, in Mission Beach. You kind of hear this being talked about a lot, where these homes are being purchased and they’re being turned into Airbnbs. And what does that do to the neighborhood? What does that do to the people who live there full time? Then, on the other end – also at the top in of a high investment rates – we saw southeastern San Diego, which is a lower-income area, the real estate is cheaper there, the houses are cheaper there. In a lot of those circumstances, the houses are being flipped and being sold for a lot more money. So, it changes the feel of the neighborhood.
What we saw is that this is happening in two different areas – very different demographically – and for two very real, prominent reasons.
Jeff Light: Super interesting. Kristina Davis, you are one of the editors on this story. Tell me a little bit about the journalistic significance of the story. What are the implications of what we found here?
Kristina Davis: I think part of what the story demonstrates, as Lauryn said, are the anecdotes that I think probably all of us have heard – especially in this hot housing market right now – of people just getting priced out. You have people who want to buy a home, maybe it’s their first home or they want to get into the housing market, and they’re putting in multiple offers on houses, these bidding wars are happening, and these people have got a mortgage and a lender that they’re working with.
Then, they’re basically dealing with investors or large corporations who are cash-rich. They come in with all-cash offers and a seller, for the most part, is going to go for that cash offer. It’s a quick close, they don’t have to deal with a lender getting in the way and mucking things up. I think this really does illustrate that problem.
One of my really close friends is a real estate agent in the county, and she has told me so many stories just over the past year about taking around clients to buy a house – many times, it’s their first home and they’re trying to get into the market – and just continually being outbid by these all-cash offers. And it’s heartbreaking for people, because you kind of fall in love with homes and they keep getting pushed out. She’s told me several times her clients just kind of give up and they say, “I can’t do this right now. I’ll call you in a year or two when we’re ready to try again.” They’re just so fed up with the experience.
Jeff Light: Yes, as a reader, to me, it seemed like a really good example of perverse incentives – meaning, here investors are making a profit by removing housing from the market. There’s this shortage of single-family housing for people, and here, the prophet drives people to actually reduce that number, turning these into Airbnbs, taking them off the market to flip them.
But some of the participants saw their work differently, Lauryn. How did the house flippers describe the social good of what they thought they were doing?
Lauryn Schroeder: Greg Moran did talk to a couple of people who kind of provided the other side of this, which is a good point to make as well. A lot of people – when they’re buying their first home or they’re buying a bigger home for their family – they don’t want a project. A lot of people want move-in ready houses, and the housing supply is already low. So, these flippers and investment companies see it as a way of bettering the neighborhood. They are taking a rundown house that would have a hard time being sold and, because it would take a very specific person who is willing to take on a project to buy it, they are making it move-in ready in a very short amount of time.
The problem with that is the house is infinitely more expensive when it’s flipped like that, because these investors, rightfully, are trying to make a profit off of it. So, it becomes unattainable to quite a few people.
Jeff Light: Right. That dynamic of simply by moving the price it reduces the housing availability, because fewer and fewer people can afford it. I thought that was really interesting.
I wanted to turn to one other facet of this. Through Lauryn’s work, we’re able to see this map of more than 6,000 of these homes out of 77,000. No? Give me the numbers, Lauryn.
Lauryn Schroeder: In the city of San Diego, it’s a bit smaller. We’re looking at close to 1,000 homes that were purchased by investors inside the city. And that is 8 percent.
Jeff Light: Got it. And you were able to map all of that. It’s pretty striking when you look at it. And we were having a conversation about the best way to show this, right? Rolled up at the ZIP code level by shading “my ZIP code” versus “your ZIP code” – that was one way of representing the information. Then, actually seeing the dots on the map tells you a lot more, I think, about a neighborhood.
And Sam Schulz, I thought you had a good observation when we were having that conversation about how specific do we want to be with mapping these houses? I thought maybe you could share your thinking there.
Sam Schulz: Sure. I think this sort of goes back to the fact that, as Greg and Lauryn saw in their analysis and explain in the story, “investor” is not always a particularly easy term to define, and that’s largely due to the opacity that can surround the structure of an LLC, which is what so many of these buyers they were looking at were. So, the data analysis and the story itself really illustrate that and explain what sorts of situations the use of an LLC for a home purchase can mask – for instance, a wealthy homebuyer who wants anonymity for buying their own personal residence using an LLC to buy it.
In the story – because we were only looking at single-family homes in the first place (this does not include apartment buildings or condo complexes) – we were wary of illustrating that down to this very particular property level, particularly in neighborhoods where we might be looking at homes that are owner-occupied and where we’re, essentially, zooming in on somebody’s house saying, “You know, this is an investor-purchased home,” when, for all we know, it might be an LLC that somebody used to buy their home.
Jeff Light: Yes, I think that’s well said. Through some very careful data analysis by Lauryn, we’ve got clear insight into this trend. But, when you boil it down to the single point, we haven’t talked to all 1,000 people whose dots are on that map and, so, there is a little bit of an unknown at that level. I think that’s prudent to hold the data a little bit at the 1,000-foot level rather than listing every single individual address and sale.
Fantastic work, Lauryn. What I really liked about this story is we write about housing sales every month – like a lot of things in our news cycle – and here we look a lot closer and discover a whole world of fascinating things going on in our community.
