There are many problems in
the modern housing market, but the biggest one for
Americans tends to be the price. Prices rose 40% from the
start of the pandemic. In the final half of 2022,he
typical US home sold for a record shattering $468,000. That's unaffordable for
most Americans, leaving them to rent. The housing costs are
completely out of line with wages. Some members of Congress
believe Wall Street is a part of the problem. What's outrageous is your
tax dollars are helping Wall Street buy up single family
homes. You're subsidizing Wall
Street. Massive private equity firms
like Blackstone and Pretium Partners have backed a
relatively new breed of homeowner, the corporation
. This growing industry buys
or builds single family homes and then rents them
out. We hear from community
organizers that are doorknocking in certain
neighborhoods and are just surprised by how many of
the homes on a particular block will be owned by a
corporate landlord. Industry advocates say
corporate landlords play a critical role in addressing
the nationwide housing crisis. What we have in housing in
the United States is a chronic shortage since the
financial. Crisis. And so the question
really is how do we fill that gap? Is the answer
incentivizing new housing development, new housing
investment, new market participation? What's behind the rise of
corporate landlords and how, if at all, will the
government regulate them? As of 2023, corporate
landlords only command a small portion of the rental
housing in this country. The vast majority of all
rental units, including apartments, are owned by
individual, small time investors. But there's
growing focus on single family homes. Institutions. Large
companies only account for about 1% of all the rental
housing in the United States, and only about 2%
of the single family rental housing. There's a small but mighty
group of companies that lead the industry. So Pretium is the parent
company for a company called Progress Residential that
owns about 90,000 homes. They were started by Don
Mullen, who came out of Goldman Sachs Mortgage
Group. Invitation Homes was
started by Blackstone, but Blackstone sold their
position a long time ago. They own about 80,000
homes. American homes for rent,
which was started by Wayne Hughes. They own about
60,000 homes. There's a company called
Tricon Residential that's out of Canada. And then there's one called
Amherst. Those are the big five. In recent years, corporate
landlords have been most active in the Sunbelt. In 2021, corporations
bought 28% of all the homes sold in Texas. That figure was 19% in
Georgia and 16% in Florida. Companies like Pretium and
Blackstone target these markets. Blackstone in
particular, has held large stakes in several companies
that dominate the region. Rent hikes for single
family homes in this region have outpaced other parts
of the country since the onset of the pandemic. Rents for a two bed
detached home increased about 43%. In Phoenix, they're up 44%
in Tampa and 35% in Atlanta. That's compared to 24%
nationwide. Experts say that many of
the properties bought up by institutional groups were
previously owned by people who were destabilized in
recent recessions. After the pandemic, people
saw the opportunity to go into these lower income
neighborhoods, working class neighborhoods, buy up these
houses and in communities that the working class can
afford. And they're holding these
houses often for years, taking them off the market,
making it even harder for young people and working
class families to own a house. Companies like Blackstone
make serious money from these investments. For example, the company's
real Estate Income Trust delivered an 8.4% return on
investment in 2022. This in a year when the
wider stock market declined nearly 20%. Part of the problem with
private equity involved in housing is that they're in
it for the short term. Their goal is to take a
company, increase cash flow in order, then to sell it
or to take it public, which they did in the case of
invitation homes. Unlike many smaller
landlords who still are looking to have a profit,
maybe in it more for the long term and see it as a
long term investment are more concerned in terms of
stability and concerned in terms of satisfied tenants
and wanting there to be less turnover. With private
equity, it's really about kind of maximizing the
short term returns. In particular, real estate
funds issued by private equity groups can be a
useful hedge against inflation, boosting their
popularity. Analysts write that by
2030, institutions may own 7.6 million single family
rental homes. That could be more than 40%
of the market. But that's a big if. Many real estate experts
say the main solution to the problematic housing market
is to build fast. In the late seventies and
early eighties, the United States routinely generated
between three and 400,000 starter homes a year. In 2020, we generated
65,000. So we have a situation now
where we're trying to catch up, but we haven't quite
gotten there. 15 years ago, lots of homes
were coming onto the market. As Wall Street's risky
lending led to a crash in the late 2000s, scores of
people lost their homes. Roughly 8 million mortgages
went into foreclosure between 2007 and 2016. Institutional investors
stepped in buying up homes that were on sale. A lot bigger. Investors
started to get into the rental game. They started
buying up thousands of these distressed properties. And actually they really
helped to put a floor on home prices because home
prices were crashing so hard. There was a decision to
subsidize some of these private equity firms to go
into the housing market. You could argue that that
was needed because the market had been so
suppressed. This crash led to the birth
of the single family rental industry. So I had a friend of mine
who was very well connected. He took me all around
Washington, D.C., and I just shared what was going on. And then out of that, I met
with somebody at HUD whose idea was like, Why are we
going to foreclose on all these people and try and
create huge losses for HUD, the Housing and Urban
Development, and then provide all sorts of rental
assistance to these people who are going to need it? Why don't we just basically
keep them in the house, restructure it, maybe say,
okay, you're a renter now, not a homeowner, but
causing far less distress. You started to see the
emergence of professional management in the single
family rental home space. I mean, it was needed maybe
for a couple of years, not for a decade, where it's
lining the pockets of people now on Wall Street. Still, many people say that
the institutional investors are providing a quality
product to relatively high income individuals. They figured out pretty
early on, like it's pretty hard to be profitable when
you're focusing on people who are missing payments
all the time and living in 70 year old homes that need
a lot of CapEx. So the Wall Street group
has focused on newer homes and higher paying higher
income tenants who are more discretionary renters, not
not out of necessity because that's been a better profit
model for them. Other experts point out that
given the supply constraints, there aren't
many other options for people on the market. It's almost a captive
market, particularly in terms of with single family
rentals. They've been very explicit
about how people are shut out of the the home buying
market and are going to be perpetual renters. Renting or buying your home
is one of the most consequential financial
decisions an individual will make. Home ownership is the main
way in this country that people build wealth. And while in some ways it
may not look very different whether somebody is renting
or owning a home. Financially, it's very
significant both for that individual family and for
communities, whether or not they do own the home. That said... Not everyone wants to be a
homeowner. They want to be able to
rent for a little while, potentially move within
that neighborhood or move to another state. Moving and
flexibility has become a premium to most consumers,
so renting is not considered less than buying. It's actually favored by a
lot more consumers. Some of this can be observed
in this chart. It shows the so called home
ownership premium. The time periods depicted
in blue show when renting would be a better deal. That includes most of 2021
and the periods marked red. Owning was a better deal
that includes many of the years following the Great
Recession. The changes in the home
ownership premium are driven by home prices and mortgage
rates. Usually the cost to be an
owner are a couple hundred dollars a month higher,
especially if you start throwing in maintenance and
other things. That's even higher than
that. Lots of potential buyers may
be waiting for a wider correction in the housing m
arket. Over the last 40 years. The housing cost for the
typical home in America compared to the income of
the typical home buyer has been running 29 to 30%. Whether you look at the
median or the average, it has blown out to 42% right
now. We have a pretty
significant home price decline forecast coming. What I've seen, anything
from really not falling at all this year to dropping
back ten, 15%. Now, the thing that is
different this time around than during the Great
Recession is that supply and demand issue, there's still
not enough supply and that's going to keep prices
inflated. Some experts believe the
best way out of this problem is not to limit corporate
landlords, but rather to do whatever it takes to build
more housing. Some of these big REIT's,
these landlords are actually building homes. They're
adding to the supply that we desperately need. Experts believe this trend
could help, but it needs far more time to prove its
value. We can only find 909
actively selling Build to rent communities, about 10%
of the rental home construction in the country
right now. But 26% of renters rent a
single family home. So it's not even keeping up
with the pace of rental demand for single family
versus apartment. Some members of Congress
believe limiting corporate activity in the housing
sector is a good first step. Wall Street is going to buy
up a single family home and it's vacant for a couple of
years. We're going to tax it,
forcing these firms to sell that back into the market. What we're saying is don't
have private equity buying up single family homes. That's going to mean there
are more single family homes on the market. With a split Congress, it
would take significant bipartisan efforts to pass. There are some bills in
Congress which want to limit the amount of homes that
investors can own, and they're unlikely to get
through because they're pretty drastic. They're
telling investors that they're going to have to
only be able to own, in one sense, 100 homes or they're
going to have to pay significant taxes on the
others. Now, these institutional
investors own thousands of homes. In a statement, Blackstone
told CNBC that every home they own could go to a
resident who hopes to buy the home later. I mean, we think, frankly,
that they just own too many. Particularly in terms of in
the single family home industry. I think there are
ways such as implementing additional taxes on them
that would either generate money for affordable
housing or encourage them to sell off from their
portfolio. And we do support rent
control. Just cause eviction. Different conditions in
terms of the to ensure the habitability of a property. On the ground. A litany of
states have tried to provide direct relief to tenants
through policies like rent control. Groups backed by
Blackstone have fought back hard. In 2018, the company
spent about $7 million to oppose rent control for
single family homes in California, according to
researchers at University of California at Berkeley. In a statement to CNBC, a
Blackstone spokesperson said the proposition would have
exacerbated the state's housing crisis. At the same time, the
private equity group has not made meaningful investments
in building new single family homes. There's got to be a bit of
distress there, but long term, this is the first
inning.
