Yesterday, I produced a diary about corporate slumlords; Today is about homebuilders who don’t built single family homes to sell. They built only for rental and deprive families of the opportunity to build intergenerational wealth.
From Matt Stoller www.thebignewsletter.com/…
How did we get here?
Until the 2008 financial crisis, there were no large landlords of single family homes, it just wasn’t practical to buy this asset class in bulk. But because of Obama foreclosure policies and how Fannie and Freddie allowed purchases of single family homes, private equity swooped in and started buying. And they haven’t stopped. And now they are a small but increasing share of the market, and probably much more significant if you look at the market as a series of regions.
What’s happening is the consolidated homebuilders are starting to work with consolidated corporate landlords to transition Americans away from homeownership. In 2021, Invitation Homes and one of the builders Pulte cut a deal where Pulte is building 7,500 homes specifically for Invitation to buy and rent. To put it another way, where did the starter home go? Well, it’s still there. It’s just no longer a home you can buy, it’s one you have to rent. And pay an air filter delivery fee.
Let’s start with something fairly surprising outside of the corporate landlord space, but adjacent to it. Back in August, I wrote up the small circle of firms that comprise the homebuilder cartel, which consolidated after the financial crisis. Despite a housing shortage, or likely because of it, there are now 12 new billionaires or billionaire families in the homebuilder industry created since 2019. That’s just stunning, because these people are getting rich not by building, but by not building. There was a slight increase in housing starts in 2020, but what’s happening is almost entirely a spike in price without an increase in new supply.
How is that related to these large corporate landlords of single family homes? Well, homebuilders actually build single family homes, and there is a significant segment of the market called build-to-rent, which is about 8% of all housing starts and growing rapidly. And these build-to-rent homes are managed by… large corporate landlords. Both groups, the landlords and the builders, like the new consolidated approach. And neither is a particular fan of anti-monopoly policy.
Back in July, billionaire real estate magnate Barry Sternlicht went on CNBC and attacked the new antitrust regime. “I think Lina Khan has gone off the deep end,” he said. “We think the FTC has lost its center.” At the time, I just thought he was some billionaire under investigation doing some griping. And that’s not wrong.
(Apologies for the commercial interruption...)
But it turns out, Sternlicht wasn’t just speaking for himself, he used the term “we.” And he mentioned that he and one other company are being investigated even though they own a small share of the broad real estate market. It turns out, his firm, Starwood Capital Group has 14,000 single family homes, mostly in the sun belt. And according to the Capitol Forum news outlet, Starwood has contracted with Invitation Homes to do the property management and price-setting for its rental portfolio, which likely has substantial geographic overlap. In other words, it looks as if Sternlicht has a price-fixing problem here.
And Invitation Homes is also deeply connected. Barry Sternlicht, for instance, isn’t just a partner with Invitation Homes, he helped form it, selling a subsidiary of Starwood to Invitation in 2017 and serving on its board until 2020. So his disdain for Lina Khan comes from a genuine recognition of the threat she poses to his ability to reap unfair fees.
Basically, the builder is the slumlord.
This isn’t happening in a vacuum either. When one considers the recent rent (price) fixing scandal in apartment rentals, it’s no wonder that the US is in the middle of a corporate assisted housing crisis. It is much more lucrative to build to rent, creating mandatory fees and subscription services, stepping on your tenants’ credit ratings by filing false reports and limiting their ability to rent elsewhere by filing unnecessary eviction suits after they move out.
