California Governor Gavin Newsom has rarely been in lockstep with the federal government recently, but they agree on one issue: stopping corporate investors from buying single-family homes.
Investors in California have quietly snapped up 40% of the fire-scorched lots in Altadena, a Los Angeles suburb, according to a recent Redfin report. Newsom is calling for new state oversight in stopping large investors from buying single-family homes in California.
“When housing is treated primarily as a corporate investment strategy, Californians feel the impact,” a source in the governor’s office said. “Prices go up, rents rise, and fewer people have a chance to buy a home.”
It echoed President Trump’s earlier post on Truth Social, where he said, “I am immediately taking steps to ban large institutional investors from buying more single-family homes.”
Waiting for More Details
There have been no specific numbers on what “large” institutions investors mean, although the president’s use of the word “institutional” would imply Wall Street REITs and hedge funds rather than smaller mom-and-pop investors. Newsom hasn’t offered further details, but a recent statement implies that Wall Street was also the target of his ban.
“These investors are crushing the dream of homeownership and forcing rents too high for everybody else,” Newsom said in a statement. “I think it’s shameful that we allow private equity firms to become some of the biggest landlords in our cities.”
Smaller Investors Own Most of California’s Single-Family Rentals
As with much of the U.S. single-family housing market, corporate investors are not the primary owners in California, where fewer than 3% are owned by companies that own at least 10 properties, according to an analysis by the California Research Bureau.
Only 20,066 homes are owned by firms with portfolios of 1,000 or more, the largest being Invitation Homes, which owns 11,000 in the state, the California Research Bureau says. That is a sliver of the more than 16 million rental units across California, according to Census data.
This information was stressed by Scott Lincicome, vice president of general economics and trade at the Cato Institute, who told CNBC, “Institutional investors are just not the main market movers. It’s mainly a supply issue.” He describes the proposal as “populism 101.”
Are Fire-Damaged Lots a Good Investment?
The combination of federal and state efforts to curb large investors buying single-family homes, when applied to neighborhoods where institutional investment is concentrated, could mean fewer bidding wars against deep-pocketed adversaries for fixer-uppers and rentals.
However, to buy anything in areas affected by the L.A. wildfires, such as Pacific Palisades and Malibu, you need deep pockets. Mom-and-pop investors in these neighborhoods are already multimillionaires. But for the homeowners, selling their lots is likely a different story.
“In Altadena, there’s a real push around the idea that the community is not for sale,” Redfin agent Sylva Khayalian said in the Redfin press release. “People who plan to stay are encouraging others not to sell because of how much it could change the neighborhood—but for some residents, selling is the only option that makes financial sense.”
Consequently, some are “signing on the dotted line because they’re desperate to sell” due to the cost of cleaning up smoke and ash damage, Khayalian adds, which can run into hundreds of thousands of dollars, especially when remediation and the cost to treat lead exposure and landscape destruction after heavy rains are factored in.
High Outlay
For investors, buying one of these fire-damaged lots means a big initial outlay. Khayalian says that Altadena lots are selling in the $500,000 to $600,000 range, and surviving lots with similar homes might command $1 million or more. Meanwhile, in Pacific Palisades and Malibu, the number is closer to $1.3 million to $1.6 million.
“There are so many lots sitting on the market that sellers are starting to cut prices to attract offers,” Khayalian said, suggesting that leverage has tilted in favor of buyers here. Still, it’s a heavy initial outlay for an investor, even though they are not bidding against Wall Street behemoths.
Adding Units Through ADUs Could Be a Game Changer
A lot depends on the nature of Newsom’s crackdown. If the legislature adopts tax changes that penalize bulk acquisitions or tighten rules on corporate ownership, it may ease competition and create opportunities for small landlords to buy single-family rentals and small multifamily properties.
If this is combined with Newsom’s already stated interest in alternative construction methods, including modular housing, and with encouragement of ADU construction, smaller investors could benefit by adding units, converting properties, and participating in rebuilding efforts, despite the initial outlay required to purchase lots and damaged homes.
Final Thoughts: Factors Smaller California Investors Must Consider
Investing in a single-family home in California, especially in a fire-prone area, is not a simple process. Khayalian explained:
“The homes for sale that didn’t burn are only attracting offers if they’re priced reasonably and the owner has remediated ash and smoke damage. The most important thing someone looking to buy in this area can do is figure out if they can afford insurance. Mortgage lenders in California require homebuyers to have fire coverage, and premiums have gone up by 35% to 50% since the fires.”
Unfortunately, even if a neighborhood was not recently affected by a wildfire, investors in California could still be affected by one, given the state’s proximity to forests. Most of California is a potential tinder box.
Deciding where to invest means getting a good deal on homeowners’ insurance. Between 2019 and 2024, more than 100,000 homeowners lost coverage. The California FAIR Plan, known as the “insurer of last resort,” has grown by 155% since 2021, but its coverage still pales in comparison to conventional insurance. For the time being, it’s all that many Californians have, and rental property investors have to decide whether that’s a risk worth taking.
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