This piece in CNN Business lays out most of the game plan: buy up as much housing stock as you can with institutional funds, then rent it back to would-be homeowners, all to prop up the 20th C lifestyle that is going to kill millions over the next century.
For institutional investors starved of returns on government bonds, “Generation Rent,” the mostly millennial cohort born between 1981 and 1996, provides an opportunity for reliable long-term income. With an increase in the average age of renters comes rising demand for larger suburban houses suitable for families.
“Wealthier people are renting for longer and their demands are going up,” said Gemma Kendall, who advises investors in multi-family properties for Jones Lang LaSalle (JLL) in Europe, the Middle East and Africa.
That’s precipitated a rush by institutions to buy — and build — so-called “single-family houses,” displacing private landlords and making big investors a powerful new force in housing markets.
Housing is no longer shelter or a place to invest in your community through ownership: it’s just another asset you can’t afford. Berkshire Hathaway closed at $418,000 today: might as well buy a piece of that.
The coronavirus pandemic gave institutional investors all the proof they needed that single-family rentals could survive a severe economic downturn.
Real estate analytics firm Green Street estimates that single-family rental values in the United States are 15% above their pre-Covid level. Renting out single-family homes is expected to deliver annual returns for private investors in the next three years of 6.8%, compared with 6.1% for apartments, 6.3% for industrial properties and 6.4% for malls, Green Street said in a July report.
And imagine that: the 2008 crash that no one was held accountable for was the spark that lit this fire.
In the years following the 2008 housing crash, pension funds and traditional real estate investors mostly steered clear, leaving it to opportunistic hedge funds and private equity firms to mop up supply.
Now, big institutions can’t get enough of family homes. Earlier this year, funds managed by Invesco Real Estate, one of the world’s largest property investors, gave Mynd $5 billion to buy 20,000 homes in the United States in the next three years on behalf of pension funds.
Mynd is currently buying between 30 and 40 homes a month and wants to increase that to over 1,000, according to Brien.
All this does is tighten supply/reduce inventory and raise prices which makes this so maddening: I wonder why “people […] can’t afford to buy their own home?”
Dave Flitman, the CEO of Builders FirstSource, told CNN Business in July that construction on new single-family housing units was up 34% in the second quarter of 2021, compared to the same period in 2019 before the pandemic.
These developments are often in good school districts and offer a quality of life that might otherwise be inaccessible to people who can’t afford to buy their own home, Palacios said.
Maybe it’s because so many homes are being bought up, so many new subdivisions are being built as rentals, and it all comes down to land.
And this was adorable…
For renters accustomed to knowing their landlord by name, dealing with a corporation might take some adjusting to.
As institutions move into an industry overwhelmingly dominated by “mom-and-pop” landlords, analysts say they’re giving renters more choice, improving the quality of homes available and streamlining processes through technology.
“We would argue that [institutional money] is driving standards up in the rental market, which is a positive thing for households and the sector,” said Oliver Knight, head of residential development research at Knight Frank.
You would argue that but you would be wrong. Property managers don’t actually manage the property: they manage the investment, doing as little as they can, slow-walking repairs, so long as the occupancy rate stays high. The land is the asset, the building rents are just how it gets paid for. Sure, there may be some kindly old duffer who keeps his place up, some old doll who likes to put flowers in the entry way, but they are few and far between.
There are, of course, plenty of private landlords who treat tenants badly or fail to meet expectations without fear of any public backlash. Unlike institutions, they have no corporate reputation to protect. Institutions are also “in it for the long term,” said Knight of Knight Frank. “It pays for them to be a good landlord and keep everything well maintained and working,” he added.
When all the rentals are in the hands of a few concentrated corporate landlords – when Main Street and your street are owned by Wall Street — what options will renters have? Rents rise to meet wages and no one will care about the landlord’s reputation when they need a place for their family. There will no pool of vacancies to choose from: supply will be tight and rents will stay high.
So what is to be done?
A split-rate land rent that values the highest and best use of the land, with higher rate on land than on the improvements, is the best option. But as a start, anytime a single family home’s tax bill goes to an address other than the address of the home, it’s considered a business and should be taxed accordingly. 20% of Seattle’s single family homes were rental last I looked. We have zoning laws that prevent businesses from opening up in the middle of a residential block: why do we permit Wall St to siphon off local wages by breaking up neighborhoods? Ideally, a well-tuned ground rent would put enough affordable housing into the market to hold shelter rents down.
Housing is all about land and land is a cartel, a group of owners whose interest is in keeping up the value/sale price of their property through managing supply — blocking development, opposing zoning changes, clinging to street parking and parking minimums, doing whatever they can to keep their unearned wealth. The value of location, of land, is created and increased by the activity around it. A vacant or underused parcel of land in a strong economy will gain in value with no effort on the owner’s part. That’s unearned wealth, and should be recaptured for the benefit of those who created it through a ground rent.