Corporate Ownership is Squeezing Rents in Some Cities

Source: the Coalition for Affordable Housing Protestors in front of Blackstone Group’s office in Santa Monica

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.

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House Rich, Dirt Poor

New Orleans    During farm crises, as prices get lower for crops and property taxes get higher, the old saying in rural areas about being “land rich, and dirt poor” comes to mind, especially in the states that have property taxes.  Talking to a relative about his aging father’s house, he mentioned that his son would love to have the house but couldn’t afford the likely $30,000 in carrying costs to hold onto the property in insurance, maintenance and property taxes.  Talking to a fair housing specialist recently about changing neighborhood demographics triggered by natural and speculative gentrification, it was hard to escape the fact that rising property taxes were making it harder for older, especially fixed income families, to avoid trying to cash in as the market rises, because they have little choice when their combined taxes and insurance have them against the wall, and they’ve become “house rich and dirt poor” as well.

How can we continue to avoid the regressive nature of property taxes as an income source for local governments when it so disproportionately burdens lower income and working families and exacerbates the gap between the real rich and the rest of us?

So, first things, first.  A progressive tax is one that equally distributes the burden based on income, like for example the income tax, not because it is a fixed percentage, but because it is based on ability to pay.  The wealth tax being promoted by some politicians has this notion at its heart.  A regressive tax is set at a flat rate and therefore takes a larger bite out of lower income or fixed income families than it does for the rich.  The best examples are sales taxes, especially when they do not exempt food and medicine, classic ACORN campaigns I might add, and property taxes, because these taxes do not make any allowances for income or the ability to pay.

Looking at property taxes, if they increase willy-nilly without any exemptions or caps for fixed income and lower income families, as gentrification raises its ugly head, there’s no way a family can survive without serious bucks.  Gentrifiers and developers are callous about this issue.  They will rationalize that the lower income family made a couple of dollars when forced to sell and will be better off somewhere else without taking into account their love and seniority for their community, travel distances, and the likely lack of affordability of alternative housing for them when they are dislocated, much less the value of diversity in the urban scene.  All of which will create cities of the rich, if there are not diverse sources of city income and hard and fast public policies to allow everyone to be able to live and thrive in the city.

Inability to grow food on farms will get someone’s attention someday.  Maybe even the problem of boomers and their families not being able to save their homes because of the burdens of taxes will be noticed eventually.  We might hope change will be triggered as well by displacement due to gentrification in cities that is happening throughout the world now.

Hope is not a plan, so sadly it may be too late for most people.

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