Twenty years ago, I bought my first house here in Central Florida for $92,000. I would later have trouble selling it because of the massive foreclosures in our area, thanks to the 2008 housing collapse. (It hit Florida particularly hard.) Now we have the opposite problem: My newly married millennial daughter wants to move into a small house nearby. She and her husband have great jobs and great credit, but after putting offers on multiple houses, they are frustrated and disgruntled.
There are plenty of single-family homes in Central Florida, but the problem is that most of them are rentals. This trend began when large firms started buying up cheap homes during the recession so they could turn the homes into cash cows. In fact, this area has one of the highest rates of single-family rentals in the nation, many of which are owned by a massive private equity firm. For the little inventory that is available, my daughter is competing with multibillion-dollar institutional investors and giant pension funds backed by Wall Street that are overpaying in cash. These entities aren’t just buying up single-family houses, but entire neighborhoods. They are easy investments and rent increases have gone through the roof. If all else fails, they can be flipped in this preposterous market that Wall Street helped create.
These firms are buying up so many houses that they are constricting supply, which is also making home prices skyrocket. Unfortunately, that’s kind of the point. A bad housing market for the rest of us is a goldmine for Wall Street. This is exactly the sort of thing that lawmakers should be fighting against, and there are many things they can do to help their constituents. Regretfully, with the exception of progressive champions like Sen. Elizabeth Warren and Rep. Alexandria Ocasio-Cortez, most seem to be more on the side of the Wall Street investors. In fact, there’s so much money being made that Wall Street landlords created their own lobbying arm to stop any regulation.
How pervasive is the problem? Institutional investors may control 40% of U.S. single-family rental homes by 2030, according to MetLife Investment Management. Investors account for 1 in 5 starter-priced homes. A new family typically puts down 5% on a new home, but investment firms taking huge sums of capital from Wall Street are paying over the full asking price and paying in cash. Agents and first-time home buyers can’t compete. What makes this even worse is that these same investment firms were the ones that had gorged on mortgages in the runup to the 2008 foreclosure crisis and then used their ill-gotten gains for this unethical new business venture. In the words of Warren, Wall Street landlords are shamelessly “profiting off the destruction they created.”
In nearby Tampa, one rental company stuffed with investors owns over 8,000 homes, while another one owns over 2,000. In Las Vegas, according to a June 2021 article from the Daily Mail, pension fund investors have been intentionally targeting adults starting families by only going after homes under $300,000 in good school districts. This allows them to prey on them later with higher rents than they would have with a mortgage. The article also predicted that this would cause housing prices to rise by 12% by 2022. In reality, by June 2022, housing prices in the Las Vegas area had exploded to over 23%.
This is happening everywhere. In Phoenix, Arizona, investment firms are paying 20% or more on bids for starter homes. They easily make up the money by renting these same homes out for 19% over the standard. One angry metro Phoenix area realtor summed it up this way:
“The way I see it, they’re stealing from first-time homebuyers. They’re trying to push this idea that your first step is not to buy a house anymore, your first step is to rent.”
Probably nowhere is the problem more exposed than in Texas. In the city of Conroe, a suburb of Houston, the infamous home construction company D.R. Horton built an entire neighborhood called Amber Pines at Fosters Ridge. Instead of selling the homes to families to live in, they decided they could make much more money by putting the entire community up for sale to investors.
They were right. A $1 billion property investing firm backed by Wall Street purchased the whole neighborhood in December 2021 for $32 million dollars, and then proceeded to turn the entire home community into rental properties.
One would think screwing over families would be something done in private. Yet D.R. Horton’s CFO, Bill Wheat, bragged about the decision at an investor’s conference, saying he made twice as much selling to an investment firm than directly to young families: “We certainly wouldn't expect every single-family community we sell to sell at a 50% gross margin!”
Although there are several investment firms engaged in this practice, none are more prominent than Blackstone, Inc. Blackstone’s CEO, incidentally, is one of Trump’s biggest allies and has openly contributed large donations to the congressional members of the #SeditionCaucus who tried to overthrow the 2020 election results. In a hearing on inflation in the House Financial Services Committee, Warren called him out over Invitation Homes, which is the $21 billion publicly traded company that he spun off from Blackstone. They are operating in 16 cities, but their biggest concentration is in Atlanta, where they bought over 90% of the homes in certain zip codes for that city.
We have these major, often private equity-backed companies, that are gobbling up homes in our housing market, which is already creating excess scarcity on top of the housing scarcity that already exists.
And then, by constricting that supply, we’re also seeing a lot of these major, huge multi-million-dollar companies then either flip those properties and resell them at a higher rate due to that artificially inflated price, or they hold on and hoard this housing stock and rent out at exorbitant prices.
Blackstone is by far the biggest investment firm in the housing market. Yet Pretium is another behemoth, with a whopping 75,000 single-family homes in its inventory. Although it’s lucrative for these companies, it’s costing everyone else. The John Burns Real Estate Consulting firm said that these private equity firm buyouts are making home costs “permanently more expensive.” The average price of a new home cost $392,000 in 2020; in 2022, the price shot up to $453,700. It is expected to be even more next year.
The growing popularity of short-term rentals through platforms like Airbnb have exacerbated the situation, according to research published by researchers at the University of Cologne. Popular tourist destination cities, like mine in Orlando, have found that over-tourism facilitated by platforms such as Airbnb and VRBO have negative impacts on both housing prices and communities. If the house is either in or close to a popular destination, landlords can fetch much higher rates by converting long-term rentals for families into short-term rentals for tourists. This has managed to push housing prices in some areas even higher, which is called the “AirBnB effect”:
A separate U.S. study found that a 1% increase in Airbnb listings leads to a 0.018% increase in rents and a 0.026% increase in house prices. It might not seem like much on the surface but there’s a cost creep for those looking to rent long-term or buy.
Unlike most issues these days, there is equal outrage across both sides of the political spectrum. Both Tucker Carlson (when he still had a job) and President Joe Biden railed against Wall Street firms stealing starter homes. At least Biden has directed federal agencies to make more single-family homes available to families over large investors by limiting the sale to large investors of certain FHA-insured and HUD-owned properties. He is also working with state governments to encourage a larger housing market to counter the effects.
However, Congress is really the only branch that can make a difference. At the very least, the Democratically held House studied the issue in June of last year. The results were shocking. Corporate ownership of homes is at an all-time high and is growing. The five largest owners added 76,235 rental homes between March 2018 and September 2021, and they hiked the fees they charged tenants significantly during the survey period. In fact, the fees per lease per year went up about 40%.
Worse, the subcommittee found that the corporate landlords, under pressure to deliver big profits to their shareholders, were more likely to evict their tenants, raise rents more aggressively, and shirk responsibility for basic maintenance and repairs. Worst of all, the firms targeted homes in neighborhoods where the rate of single mothers was higher than the national average. They also appeared to specifically go after homes in Black neighborhoods.
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The high cost has squeezed renters, and many have fallen behind on rent. Rent arrears went from 11.3% in 2018 to 19.1% in 2021, and fee arrears increased from 10% to 20.7%. Lastly, the report noted when the firms resold homes, they didn’t sell them to tenants or homebuyers, but to other investor-backed firms willing to pay a premium.
Unfortunately, this has helped lead to record cases of homelessness. Shelter officials in 15 states all reported a dramatic increase in the number of people, particularly single mothers, seeking services this year. In some cases, waitlists have doubled or tripled in a matter of months.
Congress could enact a law today requiring large investment firms to pay a tax on purchasing new homes if they already own a set number, like say 10 or 20. That would discourage stealing single-family homes from first-time home buyers. At the very least, Congress could deny tax benefits to Wall Street landlords. Three Democratic House members from California—Reps. Ro Khanna, Katie Porter, and Mark Takano—tried to pass legislation doing just that last year before the GOP takeover. Anything passed would have to get through the Senate, and despite the bipartisan push to do something, don’t expect corporate-owned politicians like McConnell and Manchin to help out anytime soon.
Ten years ago, my daughter and her husband would have had no trouble buying a home. They make over six figures and only have pets. Yet they are struggling to find a starter home at a reasonable price that is anywhere close to their jobs here in Central Florida. As the Wall Street Journal now says, high house prices along with student debt and meager savings mean that making an annual income of $100,000 is no longer enough to buy a house.
“I can’t think of anyone we’ve rented to recently who didn’t make $100,000,” said Bruce McNeilage, who owns 148 rental homes around the Southeast and is building 118 more. As more people forgo home ownership, there is a risk that America’s already-wide wealth gap gets worse.
“Houses are the democratic assets, roughly half of housing wealth is owned by the middle class,” said Moritz Schularick, a professor of economics at the University of Bonn.
Home ownership was one of the few tools that could generate wealth for the non-wealthy. A paid-off mortgage means you hold 100% equity in your home, which can be passed down to the next generation. It was the one thing that the middle class could use to ensure generational wealth. It was only a matter of time before Wall Street decided they would want to take this away from us as well. A mortgage consultant in California, Jide Buckley, put it in very stark terms, comparing the upcoming real estate market to the taxi industry in 2010:
“Taxi drivers in 2010 had no idea that Uber was going to take away their jobs. In 2021, 15% of purchases were institutional investors. … Large institutional investors coming in, buying up as much property as they can with the aim of redistributing the wealth back in their pockets, because as a homeowner you are building an asset.
Buying a home and owning a home is an asset that in 10,15 years is going to be very difficult to obtain.
Millennials and Gen Z are already having to struggle with high student debt and stagnant wages, so they can’t be blamed for not wanting to tackle the ever-increasing cost of buying a home. Yet the drawback is that you eventually end up paying more than a mortgage payment and have nothing to show for it. This is what institutional investors want, and infuriatingly, I now see many articles from investor magazines and sites pushing the idea that home ownership is no longer a good thing and that you should rent instead. (Houses are too expensive to own. You’re forced to stay in one place. And what’s wrong with living with your parents?) Of course, if buying homes is such a bad idea and such a bad investment, ask yourself why Wall Street is trying to buy up as many as they can.
I hope meaningful legislation will disincentivize big firms from their massive buying sprees so people who might actually want to, you know, live in them will have a chance to buy them. I’m not hopeful that will happen soon. In the meantime, my daughter and her husband will have to stay in their apartment—at least until the rent increases drive them out. Guess what company just bought it?