With investors knocking, Charlotte HOAs are starting to change their rules.
Keri Miller loved the townhouse community she bought into in 2017. It was more affordable than homes in other parts of Charlotte, and has a mix of residents who have lived there since it was built two decades ago, as well as young families and people of all backgrounds.
But she began to take issue with the influx of corporate investors buying up townhouses, a common occurrence across the city.
The 36-year-old business consultant saw a remedy for her concerns through her community’s homeowners association, as she convinced her neighbors at the Avalon at Mallard Creek Townhomes to change its rules, with a goal to keep out corporate investors.
To do that, Miller, who is the HOA treasurer, rallied neighbors to change Avalon’s covenant to say owners must live in the home at least a year before renting it out, meant to restrict investment firms that wouldn’t leave a property empty that long. The HOA also put in a rental cap, so that only a little more than one-third of the 110 units can be rentals.
Hers is one of several communities in Derita, a neighborhood north of 1-85 near Sugar Creek Road, that have made similar moves or are considering changes to their covenants, which dictate requirements and limitations of what owner can do with a property within a specific community.
The issue highlights several of Charlotte’s housing struggles. There is a dire lack of affordable housing. Buyers contend with low inventory of homes for sale. Renters face steep increases. Owners worry about property rights, while there’s a constant march of hedge fund-backed investors buying in the city’s neighborhoods, with the aim to quickly flip properties and make money off rent checks.
These investors, spurred on by the 2008 housing crisis and recession, now own hundreds of thousands of homes across the country, turning what were once owner-occupied houses into rentals.
Charlotte investment rentals
In Charlotte, corporate investors own more than 11,000 single-family homes, according to a report from the UNC Charlotte Urban Institute.
The Urban Institute found that corporate buyers are targeting “starter homes” in middle-income neighborhoods across Charlotte’s less affluent crescent. Those less expensive properties are also where Charlotte’s real estate market is tightest, making it more challenging to make the first step into home ownership.
Critics say corporate landlords take critical affordable inventory away from people looking to buy homes and build wealth, especially first-time buyers who have more modest budgets.
Miller believes these corporate, out-of-state landlords are less attentive to their properties than small local landlords or homeowners and don’t respond as quickly to problem tenants.
She attributed that lax oversight to an uptick in criminal activity, culminating in an early morning shooting earlier this year that sparked her drive to take action.
“Once I found myself laying on the floor on top of my baby, I was like, ‘Okay, we’ve got to do something about this’,” she said. “I’ve never experienced anything like that before….Everyone was really shell shocked, really upset and just angry that we could allow that to happen.”
Miller said there has been some “investor flight” since the covenant changed in April.
A review of Mecklenburg property records show a dozen homes sales in the community since April, including three investment firms that sold to individual buyers, though it’s not clear how the changes affected sales decision. None of the new buyers appear to be investment firms, according to county records.
Miller said she’s now aware of other communities in the Derita area considering similar changes.
Less than two miles away, Potters Glen residents changed their covenant in 2019, voting to require new buyers in the 278 single-family home community to live in the house for at least two years before renting.
More than half of the complaints, for noise, neglected property repairs or criminal activity originated from rental homes owned by investors, said Vincent Evans, president of the Potters Glen Community HOA.
“The investor companies are large corporations. They don’t live near here, they don’t live in the neighborhoods, so they don’t see actively what’s going on,” he said.
Evans said the two-year minimum policy began at a time when those companies were showing strong interest in the neighborhood.
Then interest only grew as the pandemic hit and Charlotte’s real estate market boomed, he said.
“We really enacted those changes at a perfect time,” he said. “Because when COVID and everyone was selling, we had so many investor requests to purchase property and it’s denied. We want single families to be able to purchase property here.”
Miller and Vincent said their residents wanted to strike a balance between addressing the problem and not eliminating an individual’s ability to rent out their property, especially existing owners. All current rentals, including those owned by investors, are grandfathered in.
Vincent said the intent is not to restrict individual owners who need to move for a job or inherit a property from renting their properties.
Miller said her neighborhood worked with a consultant, who walked them through how to craft a law that met fair housing standards.
Restrictive covenants in neighborhoods historically have been used for segregation, perhaps most famously in Charlotte in Myers Park. The homeowner’s association there apologized for past discrimination after local NAACP officials filed a complaint in 2007 regarding the historical “people of the Caucasian race only” requirement to live or own in the neighborhood. Across the United States, policies excluding Black or Jewish buyers, or more general “whites only” rules were common.
The 1968 Fair Housing Act prohibited discrimination in lending, renting and home sales based on race, sex, religion and other protected classes.
Miller said the investors that already owned in the community didn’t engage with the neighborhood debate about changing the covenant, and she hasn’t heard much formal push-back from them.
HOA rights
It’s difficult to know how many HOAs in Charlotte are pursuing similar changes. The City of Charlotte’s neighborhoods department does not track policy changes of individual communities, according to a department spokeswoman, though they’re aware of other neighborhoods that have considered it.
Rick Su, a law professor at the University of North Carolina School of Law, whose expertise includes property law and real estate, said attempts to restrict rentals is not new, but efforts to specifically target corporate landlords is less explored.
North Carolina law is relatively deferential to homeowner’s associations, Su said. These associations, which had several waves of growth in the United States, including post-World War II as suburbs grew and again in the 1980s and ‘90s, have rules often initially set out by developers who build the communities. And HOAs can have strict oversight over residents’ homes.
Rental restrictions by HOAs are nothing new, he said, and are commonly seen in tourist destinations with owners attempting to curtail short-term rentals like Airbnb and Vrbo.
The efforts to target investor buyers specifically, however, appears to be more novel, he said, that hasn’t been tested much in courts.
HOA rules are used to govern how properties and their owners relate to one another — houses must be painted one color because everyone else’s is that color, for instance — but Su said it can be legally trickier when policies make someone’s rights contingent on another’s behavior.
For instance, he said, creating a rental cap could be problematic if an owner’s ability to rent depends on whether another sells or stops renting. That’s in part because North Carolina courts have generally been against curtailing an owner’s ability to dispose of their property, he said.
People often hold strong opinions about what goes on in their neighborhood, Su said.
“The memory and feel, historic lineage, and the sort of culture of neighborhoods...has rich meaning that we can only scratch at with how we define them legally right as deeds and titles,” he said.
“Property not about things. Property is about relationships, and it’s about our identity, (and) that’s why we feel so strongly about them.”
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