Nearly 15% of single-family homes are owned by large private equity investors, a figure projected to rise to 35% in the next six years. Like many, I have reservations about this.
It's not a judgment on ethics or market share, but rather an educated observation that many of these entities are multinational, meaning it’s unlikely that they have the resources – or the desire – to integrate into the countless communities where their properties are located. This makes it difficult, if not impossible, to drive community improvements or address local demographic needs.
Generally, I respect private equity’s role in the economy. Professionally managed capital pools bring equity to businesses, industries, and regions beyond the reach of public markets like stocks. But excessive private equity in residential real estate can be problematic. How can investors, who are so eager to invest yet lack the scale to manage, find an alternative that improves and sustains communities? The answer is community capital.
Pooling funds for shared goals
Community capital brings together a small group of like-minded investors to target a specific investment, property type, or geographic area. Unlike private placement options, which are limited to directly purchasing assets (e.g., an apartment building) or investing in private equity funds, community capital allows investors to pool funds for a shared goal without managing the assets themselves.
The scale of private equity hinders its ability to meet community capital’s objectives. Its multistate operations, regulatory constraints, and complex management structures prevent standard private equity funds from pursuing community-focused goals. This isn’t a critique of private equity but an acknowledgment that it cannot support these localized, community-driven priorities.
Case study: Micro-Market Fund
Here's an example of how a community capital fund could address Portland’s housing challenges effectively: If 100 like-minded investors each contributed $100,000, a $10 million equity pool could be deployed to acquire or develop affordable housing. With conservative leverage, this equity could create $25 million to $30 million in affordable housing within city limits, and investors would see immediate community impact alongside strong financial returns.
For this model to succeed, seasoned operators must dedicate time and resources to projects that deliver both satisfactory financial returns and community capital’s community-focused goals. Investors should proactively seek operators, even partnering with emerging, but dedicated operators who show a commitment to broader objectives.
This model already exists in some communities. In the United States, the success of many immigrant groups, like Indian Americans’ ownership of motels and hotels, stems from pooling capital to empower community members. In return, these groups expect financial returns and community contributions, such as job creation and reinvestment. We can learn from these examples to aggregate and deploy capital to grow and strengthen our communities.