Big Boys Cashing in On Rents and Mortgages

Louisville   When it’s good for the hedge funds and real estate investment trusts (REITs), it’s almost never good for the rest of us, especially the beleaguered renters of America or anyone trying to move the next step to buy a home or get a mortgage.

Blackstone, the mega-private equity fund, cashed in once again on its multi-billion dollar bet on the rental market after acquiring 80,000 or so homes in seventeen markets around the USA, most of it through foreclosure fire sales.  Many of these homes were in semi-suburban areas around cities like Phoenix and Memphis taking advantage in the inelegant words of the Wall Street Journal “in a wager that many Americans would be willing to rent the suburban lifestyle they could no longer afford to own.”

It’s fair to say that they have made out like bandits!  The Journal figures the take in rough numbers as follows:

“…Blackstone has reaped roughly $2 billion from its two share sales [in Invitation Homes, Inc.] this year.  It also has received $682.5 million payout from Invitation before the company was public and about $197 million in dividends paid out on the firm’s shares since the IPO.”

They aren’t alone.  Their chief competitor American Homes 4 Rent is also reporting improved occupancy rates with lower maintenance costs in a climate of rising rents, as both prove that they can mange tens of thousands of rental properties when families are unable to access mortgages as easily or at a price point enabling ownership.  Other than this being great news for Wall Street and these wheeler-dealers, it’s hard to see this as good news for anyone else.

And, more news in this vein doesn’t add up to better news either.  REITs are coming back into the housing market at huge levels again, increasing their mortgage-bond portfolios by almost 28% to $308 billion over the last twelve-months or so.  Such activity puts more money at hand, but the lessons of the meltdown a dozen years ago continue to be dimly remembered since there is little real oversight examining how risky these plays may be or the different financial vehicles they might fuel in order to provide returns to investors.  Analysts claim to the Journal in another report that before the recession they were leveraged at twelve times equity, but now they are only five times equity.  Gulp, I know we’re supposed to feel better at that number, but somehow, I’m not quite there.

What do I know, but none of this adds up in a positive way for me?  Middle-income people can’t afford homes so they are paying rising rents for suburbia and hedge funds are cashing in, and Wall Street is putting more money into mortgage instruments for those with enough money to pay top dollar, while regulators and Congress are trying to exempt additional banks from community reinvestment and other reporting requirements at the same time.  To me it looks like more of the national housing market, like so much else, is being skewed to the rich and away from the rest of us.


Debt Traps by Necessity

San Jose     The Everett Program at the University of California at Santa Cruz specializes in technical solutions for social change organizations.  ACORN has enjoyed a partnership with the program for the last three years that has seen several students work with our hawkers union in Bengaluru the first year, another team work with the ACORN Home Savers Campaign in the USA last year, and this year work to produce PSAs to run for ACORN Honduras on television in that country.

Annually, I visit there when I’m in the California in order to meet the students face to face and move the partnership along.  This year was interesting not only as they showed me the progress on the video, but also talking to a class of Everett students about techniques to develop organizational commitment and how to develop campaigns.  I also interviewed several of our interns for Wade’s World.  The combination of these conversations may have been helpful to them, but the real eyeopener to me was the huge debt trap that seems almost inevitable for these students, even with their eyes open as well.

Having just done a campaign training in Oakland only days before on payday lending, I used that as an example in Santa Cruz as well.  The students told me that the average all-in cost for this public university was about $36,000 per year.  There is a housing shortage on campus where many of the common spaces are now bedrooms, and two-person rooms are now sleeping three.  In town, it’s no better.  Asking the class about their individual rents, the responses were as low as $750 for one young woman living with 7 or 8 others, but more commonly the rents per person ran from $1200 to $1400 per month.  The Census Bureau recently released a report indicating that the median rent is now over $1000 per month throughout the country.  A rent freeze measure on the ballot in Santa Cruz in the last election fell short along with the statewide expansion of rent control for additional cities.

Some students knew about payday lending, but that tended to be only the few who had come from lower income neighborhoods in California.  Most had bank accounts, but no one had a physical checkbook, and most claimed little experience with overdrafts since they lived out of the instantaneous information online on their balances, and banks blocked them going past the levels.  Asked how they picked their banks, one explained he was “born into it,” and others nodded in agreement.  Virtually all of them seemed to be facing the prospects of significant school debt when they would graduate.

Financial literacy is a fairly meaningless phrase when you really don’t have much money and are forced by necessity to embrace predatory products and debt prospects.  I thought about this reading about a migration of payday lending practices into lending arrangements for rent for millennials with irregular income.  An article in the Wall Street Journal described the companies entering this space:

Uplift, one of several startups offering loans to recent college graduates, professionals moving to a new city and others who want to build credit or could use assistance making rent payments. These companies, which also include Domuso and Till, are entering a market long associated with payday lenders. Compared with cash-advance loans, which come with annual interest rates as high as 700% in some states, funds from the rent-lending startups are available at much lower cost. Some are competitive with credit-card borrowing rates at less than 20%.

Reading that piece and thinking about what I was hearing from these young students, I couldn’t help thinking that I was working with minnows while the barracudas were circling.  It wouldn’t be pretty, and swimming in debt and desperation, too many of them will be easy prey through desperation rather than choice.