There are many problems inthe modern housing market,but the biggest one forAmericans tends to be theprice.Prices rose 40% from thestart of the pandemic.In the final half of 2022,hetypical US home sold for arecord shattering $468,000.That's unaffordable formost Americans, leaving themto rent.The housing costs arecompletely out of line withwages.Some members of Congressbelieve Wall Street is apart of the problem.What's outrageous is yourtax dollars are helping WallStreet buy up single familyhomes.You're subsidizing WallStreet.Massive private equity firmslike Blackstone and PretiumPartners have backed arelatively new breed ofhomeowner, the corporation.This growing industry buysor builds single familyhomes and then rents themout.We hear from communityorganizers that aredoorknocking in certainneighborhoods and are justsurprised by how many ofthe homes on a particularblock will be owned by acorporate landlord.Industry advocates saycorporate landlords play acritical role in addressingthe nationwide housingcrisis.What we have in housing inthe United States is achronic shortage since thefinancial.Crisis. And so the questionreally is how do we fillthat gap? Is the answerincentivizing new housingdevelopment, new housinginvestment, new marketparticipation?What's behind the rise ofcorporate landlords and how,if at all, will thegovernment regulate them?As of 2023, corporatelandlords only command asmall portion of the rentalhousing in this country.The vast majority of allrental units, includingapartments, are owned byindividual, small timeinvestors. But there'sgrowing focus on singlefamily homes.Institutions. Largecompanies only account forabout 1% of all the rentalhousing in the UnitedStates, and only about 2%of the single family rentalhousing.There's a small but mightygroup of companies that leadthe industry.So Pretium is the parentcompany for a company calledProgress Residential thatowns about 90,000 homes.They were started by DonMullen, who came out ofGoldman Sachs MortgageGroup.Invitation Homes wasstarted by Blackstone, butBlackstone sold theirposition a long time ago.They own about 80,000homes.American homes for rent,which was started by WayneHughes. They own about60,000 homes.There's a company calledTricon Residential that'sout of Canada.And then there's one calledAmherst.Those are the big five.In recent years, corporatelandlords have been mostactive in the Sunbelt.In 2021, corporationsbought 28% of all the homessold in Texas.That figure was 19% inGeorgia and 16% in Florida.Companies like Pretium andBlackstone target thesemarkets. Blackstone inparticular, has held largestakes in several companiesthat dominate the region.Rent hikes for singlefamily homes in this regionhave outpaced other partsof the country since theonset of the pandemic.Rents for a two beddetached home increasedabout 43%.In Phoenix, they're up 44%in Tampa and 35% in Atlanta.That's compared to 24%nationwide.Experts say that many ofthe properties bought up byinstitutional groups werepreviously owned by peoplewho were destabilized inrecent recessions.After the pandemic, peoplesaw the opportunity to gointo these lower incomeneighborhoods, working classneighborhoods, buy up thesehouses and in communitiesthat the working class canafford.And they're holding thesehouses often for years,taking them off the market,making it even harder foryoung people and workingclass families to own ahouse.Companies like Blackstonemake serious money fromthese investments.For example, the company'sreal Estate Income Trustdelivered an 8.4% return oninvestment in 2022.This in a year when thewider stock market declinednearly 20%.Part of the problem withprivate equity involved inhousing is that they're init for the short term.Their goal is to take acompany, increase cash flowin order, then to sell itor to take it public, whichthey did in the case ofinvitation homes.Unlike many smallerlandlords who still arelooking to have a profit,maybe in it more for thelong term and see it as along term investment aremore concerned in terms ofstability and concerned interms of satisfied tenantsand wanting there to be lessturnover. With privateequity, it's really aboutkind of maximizing theshort term returns.In particular, real estatefunds issued by privateequity groups can be auseful hedge againstinflation, boosting theirpopularity.Analysts write that by2030, institutions may own7.6 million single familyrental homes.That could be more than 40%of the market.But that's a big if.Many real estate expertssay the main solution to theproblematic housing marketis to build fast.In the late seventies andearly eighties, the UnitedStates routinely generatedbetween three and 400,000starter homes a year.In 2020, we generated65,000.So we have a situation nowwhere we're trying to catchup, but we haven't quitegotten there.15 years ago, lots of homeswere coming onto the market.As Wall Street's riskylending led to a crash inthe late 2000s, scores ofpeople lost their homes.Roughly 8 million mortgageswent into foreclosurebetween 2007 and 2016.Institutional investorsstepped in buying up homesthat were on sale.A lot bigger. Investorsstarted to get into therental game. They startedbuying up thousands of thesedistressed properties.And actually they reallyhelped to put a floor onhome prices because homeprices were crashing sohard.There was a decision tosubsidize some of theseprivate equity firms to gointo the housing market.You could argue that thatwas needed because themarket had been sosuppressed.This crash led to the birthof the single family rentalindustry.So I had a friend of minewho was very well connected.He took me all aroundWashington, D.C., and I justshared what was going on.And then out of that, I metwith somebody at HUD whoseidea was like, Why are wegoing to foreclose on allthese people and try andcreate huge losses for HUD,the Housing and UrbanDevelopment, and thenprovide all sorts of rentalassistance to these peoplewho are going to need it?Why don't we just basicallykeep them in the house,restructure it, maybe say,okay, you're a renter now,not a homeowner, butcausing far less distress.You started to see theemergence of professionalmanagement in the singlefamily rental home space.I mean, it was needed maybefor a couple of years, notfor a decade, where it'slining the pockets of peoplenow on Wall Street.Still, many people say thatthe institutional investorsare providing a qualityproduct to relatively highincome individuals.They figured out prettyearly on, like it's prettyhard to be profitable whenyou're focusing on peoplewho are missing paymentsall the time and living in70 year old homes that needa lot of CapEx.So the Wall Street grouphas focused on newer homesand higher paying higherincome tenants who are morediscretionary renters, notnot out of necessity becausethat's been a better profitmodel for them.Other experts point out thatgiven the supplyconstraints, there aren'tmany other options forpeople on the market.It's almost a captivemarket, particularly interms of with single familyrentals.They've been very explicitabout how people are shutout of the the home buyingmarket and are going to beperpetual renters.Renting or buying your homeis one of the mostconsequential financialdecisions an individual willmake.Home ownership is the mainway in this country thatpeople build wealth.And while in some ways itmay not look very differentwhether somebody is rentingor owning a home.Financially, it's verysignificant both for thatindividual family and forcommunities, whether or notthey do own the home.That said...Not everyone wants to be ahomeowner.They want to be able torent for a little while,potentially move withinthat neighborhood or move toanother state. Moving andflexibility has become apremium to most consumers,so renting is not consideredless than buying.It's actually favored by alot more consumers.Some of this can be observedin this chart.It shows the so called homeownership premium.The time periods depictedin blue show when rentingwould be a better deal.That includes most of 2021and the periods marked red.Owning was a better dealthat includes many of theyears following the GreatRecession.The changes in the homeownership premium are drivenby home prices and mortgagerates.Usually the cost to be anowner are a couple hundreddollars a month higher,especially if you startthrowing in maintenance andother things.That's even higher thanthat.Lots of potential buyers maybe waiting for a widercorrection in the housing market.Over the last 40 years.The housing cost for thetypical home in Americacompared to the income ofthe typical home buyer hasbeen running 29 to 30%.Whether you look at themedian or the average, ithas blown out to 42% rightnow.We have a prettysignificant home pricedecline forecast coming.What I've seen, anythingfrom really not falling atall this year to droppingback ten, 15%.Now, the thing that isdifferent this time aroundthan during the GreatRecession is that supply anddemand issue, there's stillnot enough supply and that'sgoing to keep pricesinflated.Some experts believe thebest way out of this problemis not to limit corporatelandlords, but rather to dowhatever it takes to buildmore housing.Some of these big REIT's,these landlords are actuallybuilding homes. They'readding to the supply that wedesperately need.Experts believe this trendcould help, but it needs farmore time to prove itsvalue.We can only find 909actively selling Build torent communities, about 10%of the rental homeconstruction in the countryright now.But 26% of renters rent asingle family home.So it's not even keeping upwith the pace of rentaldemand for single familyversus apartment.Some members of Congressbelieve limiting corporateactivity in the housingsector is a good first step.Wall Street is going to buyup a single family home andit's vacant for a couple ofyears.We're going to tax it,forcing these firms to sellthat back into the market.What we're saying is don'thave private equity buyingup single family homes.That's going to mean thereare more single family homeson the market.With a split Congress, itwould take significantbipartisan efforts to pass.There are some bills inCongress which want to limitthe amount of homes thatinvestors can own, andthey're unlikely to getthrough because they'repretty drastic. They'retelling investors thatthey're going to have toonly be able to own, in onesense, 100 homes or they'regoing to have to paysignificant taxes on theothers.Now, these institutionalinvestors own thousands ofhomes.In a statement, Blackstonetold CNBC that every homethey own could go to aresident who hopes to buythe home later.I mean, we think, frankly,that they just own too many.Particularly in terms of inthe single family homeindustry. I think there areways such as implementingadditional taxes on themthat would either generatemoney for affordablehousing or encourage them tosell off from theirportfolio.And we do support rentcontrol.Just cause eviction.Different conditions interms of the to ensure thehabitability of a property.On the ground. A litany ofstates have tried to providedirect relief to tenantsthrough policies like rentcontrol. Groups backed byBlackstone have fought backhard. In 2018, the companyspent about $7 million tooppose rent control forsingle family homes inCalifornia, according toresearchers at University ofCalifornia at Berkeley.In a statement to CNBC, aBlackstone spokesperson saidthe proposition would haveexacerbated the state'shousing crisis.At the same time, theprivate equity group has notmade meaningful investmentsin building new singlefamily homes.There's got to be a bit ofdistress there, but longterm, this is the firstinning.
