Milwaukee Looking city to city, part of what is driving rents up to record highs and exacerbating the affordable housing crisis is the critical intrusion of large corporate ownership of single-family homes in some markets in addition to larger developments where they have always been a factor. The ACORN Home Savers Campaign has monitored this development in Memphis and Atlanta, but a recent piece in Bloomberg by Noah Smith confirms our deepest concerns.
The backstory here is the one we all know well. The housing meltdown in 2007-2008 as part of the Great Recession led to millions of foreclosures of single-family homes. The rate of homeownership in the United States plunged from a record 69% before the crash to as low as 63% in 2016-2017. Fannie Mae and Freddie Mac dumped these homes in auctions. Some of these tranches were acquired by bottom feeders who wanted to off load them with various predatory contract for deed or rent-to-own schemes that have been the primary target of the ACORN Home Savers Campaign. In other cases, big private equity and corporate players bought the homes, perhaps originally hoping to flip them, but later coming to the conclusion that with minor repairs and upgrades they could milk them as cash cows for significant returns. Furthermore, in some markets where they were able to achieve density, despite still being a relatively small player in the overall US housing market, they could trigger significant rent increases in entire neighborhoods.
As the Amherst Capital chart in Bloomberg shows, we are talking about some big boy operators here starting with Blackstone, which is huge in Memphis for example, and including the notorious Cerberus among others like Tricon. Furthermore, the buying frenzy in this part of the market is increasing with researchers finding almost 9% of the rental housing market now under corporate control, even though the biggest dogs have less than 1% they are consolidating. Frighteningly, reports indicate that they have also begun to securitize these rent-bearing properties for investors which triggers a cycle that bears no good tidings for renters, affordability, or the cities where they are concentrating, particularly in the Sun Belt.
If you think I’m Cassandra here, then wrap your minds around Smith’s warning signals in Bloomberg that corporate control…
could contribute to the rent crisis now afflicting many of the nation’s big cities. Wall Street landlords may also compromise quality. Their local dominance may afford them the luxury of simply ignoring tenants’ needs, especially in cities without strong protections for renters. But the most troubling impact could be on the American Dream of homeownership. Increasingly, young Americans looking to buy houses will be competing with big corporate landlords. There are a number of reasons that competition will not favor the aspiring homeowner. Big landlords have cheap financing at their disposal — securitized bonds, REIT share sales — while individuals have to rely on mortgages. Big landlords may also value a house more, due to the high rents that their local market power lets them to squeeze out of tenants. Most Americans tend to have the bulk of their wealth in their houses. If fewer young Americans are able to buy homes, they’ll miss out on house price appreciation, and the gains will go to corporate shareholders, who tend to be rich people. Thus, the rise of the Wall Street landlord model may put a damper on U.S. middle-class wealth accumulation.
For tenants and potential homeowners, none of this is good news, and I would argue with Smith that these developments pose real national dangers.