January 8, 2024

The Rich Who Own the Home Next Door

In big cities ranging from Atlanta to Phoenix, deep-pocket investors have accountedfor between a quarter and a third of local home purchases. The impact of this deep-pocket dabbling in the sale of middle-class housing? Corporate landlords turn out to be more likely, a Vox analysis points out, to evict tenants, raise rents, and dodge needed repairs and maintenance.

Apologists for the richest among us are claiming that critics of this deep-pocket interest in middle-class housing are making a mountain out of an investment molehill. They point out, for instance, that private-equity firms and other “institutional investors” drove less than 3 percent of all home sales in 2021 and 2022.

But that low national percentage, note housing experts like Cincinnati’s Laura Brunner, can obscure what’s happening in many actual local neighborhoods. Private-equity dollars can routinely buy up “50 percent of the houses on a single street.”

Other deep-pocketed movers and shakers, meanwhile, are taking different routes to exploiting America’s inadequate supply of affordable housing. Just how inadequate? In the decade that ended in 2022, Realtor.com reported last March, the nation ended up with “a shortfall of 6.5 million single-family homes.” The investor response to that shortfall? An explosion of “residential transition loans.”

These loans go to America’s growing army of house “flippers,” local speculators of various sorts who buy up older homes from families that can’t afford to make badly needed upgrades and repairs. The loans come at a “relatively high interest rate,” as much as 10 percent annually, notes Barron’s.

Financial industry outfits like 1Sharpe Capital, a subsidiary of the Blackstone private-equity colossus, package these high-interest notes into investment funds that offer millionaires returns that can average over three percentage points more than investments in U.S. Treasury funds.

The sharpies at 1Sharpe Capital, for their role in all this, reap an annual management fee of 0.5 percent and a 20-percent “performance fee” if they deliver investment fund returns that run 1.3 percent or more above the three-month Treasury index.

These ample fees ultimately make up only a tiny share of the income that annually pours into the Blackstone private-equity pool. But every little bit helps. Blackstone CEO Stephen Schwarzman, we learned this past August, “received a total adjusted compensation package of $253.1 million in 2022.”

Rewards that outrageous have begun capturing some serious attention from progressive lawmakers in Congress. A year ago this past fall, Rep. Ro Khana from California introduced the Stop Wall Street Landlords Act of 2022, legislation that would, among other provisions, prohibit “large investors from obtaining certain federal mortgage assistance” and create a tax credit that affordable housing developers could tap to build and rehab homes in low-income communities.

Two lawmakers from the Pacific Northwest, Senator Jeff Merkley from Oregon and Rep. Adam Smith from Washington, have recently upped the reform ante. The End Hedge Fund Control of American Homes Act they introduced this past December would, if enacted, ban hedge and private-equity funds from buying up single-family homes and force them to sell off — over the next decade — the homes they already own.

Still another new bill now before Congress, the American Neighborhoods Protection Act proposed by North Carolina lawmakers Jeff Jackson and Alma Adams, would require corporate owners of over 75 single-family homes to pay $10,000 per home annually into a housing trust fund individual families could tap for help on housing downpayments.

None of these pending reforms have any shot at making it through the current Congress, not given America’s current plutocratic realities. America’s richest don’t just have the wherewithal to exploit the real needs of average American families. Their wealth distorts our national political dialogue. Their political power dooms and delays real solutions to the problems average people face.

How can we advance those real solutions? We need to think big. We need to start redistributing the fabulous amounts of wealth that have concentrated at America’s economic summit. Without that redistribution, our wealthiest will continue to exploit our society’s most aggravating unmet needs.

Take, for instance, the wheeling and dealing of one of the latest billionaire entrants into the buy-up-America’s-housing-stock sweepstakes, Jeff Bezos. The investment fund start-up Bezos is backing, Vice reported last month, “is betting on single-family home rentals because fewer people can afford to buy homes and more people are stuck renting.”

California congressman Ro Khana’s reaction?

“The last thing Americans need is a Bezos-backed investment company further consolidating single-family homes and putting homeownership out of reach for more and more people,” Khana noted last month. “Housing should be a right, not a speculative commodity.”

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