A few days ago, a brilliant thread on Twitter outlined how big financial institutions in the US may now be cornering the US housing market. So we thought we could look into this matter and see how there’s a new corporate landlord emerging in the US.
The Story
Imagine for a moment you’re all set to buy a nice new home. You’ve saved up for years. You have a family. You think it’s an investment worth making and you’re about to realize the quintessential middle-class dream. And then suddenly out of the blue, you find out you’re being stacked up against a multibillion-dollar company in a bidding war. In fact, they’re routinely outbidding you by paying 20–50% more. There’s no chance in hell you’re buying that house when you’re up against such competition and it’s happening across the US.
According to the New York Times, Wall Street has pumped in some $60 billion to buy thousands of properties meant for middle-class buyers. In some instances, institutional buyers have even lapped up entire neighborhoods. As per John Burns real estate consulting, ‘roughly one in every five houses sold is bought by someone who will never move in’. And all of this is pushing prices higher.
Millennials and Gen-Zs are being screwed over and there isn’t a single thing they can do about it.
But like every good story, this didn’t happen overnight. Instead, you could trace the origins back to 2008 — when real estate prices dropped precipitously and forced homeowners to default on their loans. The people that lent money were left holding millions of properties they couldn’t put to good use. And the US government wanted to fix this crisis. They wanted somebody to come in and buy these homes in a bid to shore up prices.
So in 2012, the US government launched a program that allowed institutional investors to buy foreclosed homes by the hundreds from a government agency known as Fannie Mae. They also allowed these investors to rent these places in the hopes of spurring demand.
And according to the Atlantic, between 2011 and 2017, large private-equity groups, hedge funds, and other big investors spent around $36 billion to buy up more than 200,000 homes across the US. In one particular zip code in Atlanta, investors bought almost 90% of the 7,500 homes sold between January 2011 and June 2012. They were thrilled to uncover a new asset class— a single-family home that offered a steady stream of rental income. And with it, they had a new job too — America’s new corporate landlord.
At the time, it didn’t seem like such a bad thing. They promised to do better than the average US landlord and everybody kind of went — “Hmmmm… Maybe”. But soon enough, cracks began to appear. Tenants were evicted on short notice. They didn’t really do much on the maintenance front and you couldn’t reach these people unless you made a concerted effort to find the management.
More importantly, they skimped on their responsibilities. The only thing that mattered? Rental yields. So long as the money kept coming in, they kept buying new homes. In fact, after Covid, they’ve gone into overdrive. The US government is pumping new cash into the economy that’s eventually making its way into these institutions. This is why they have the appetite and the financial muscle power to keep buying new homes.
And it’s distorting the US housing market in a big way. People looking to buy new homes are being made to compete with companies like Invitation Homes — the largest home leasing company in the country. And it’s effectively locking out an entire generation from ever aspiring to own a home.
A truly tragic set of circumstances indeed.
Until next time…
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