The housing market has seen a surge in prices, with everyday Americans pointing fingers at Wall Street as the cause. Despite economists and analysts categorically refuting these claims, the narrative continues to thrive. This begs the question, are institutional investors, such as Blackstone, BlackRock, and Invitation Homes, really to blame for the nationwide housing crisis?
At first glance, the numbers seem to absolve these firms. Institutional investors account for less than 5% of single-family rentals and less than 1% of all single-family homes. However, in popular markets like Atlanta, Dallas, and Charlotte, the figures tell a different story. In Atlanta, for instance, Wall Street owns more than 4% of single-family homes. This has sparked speculation that these institutional investors could be driving up housing costs.
Are Institutional Investors the Real Villains?
The housing affordability crisis has seen many fingers pointed at hedge funds, corporations, and asset management firms. The argument is that they are driving up rents and home prices, making housing unaffordable for average Americans. Politicians have also joined the fray, with some Democrats in Congress introducing a bill last year to prohibit hedge funds from owning single-family homes.
Senator Jeff Merkley, one of the bill’s proponents, argued that everyday Americans are not just bidding against other families for houses, but also against America’s billionaires. The result, he claimed, is that home prices and rents are skyrocketing.
However, it is important to note that Wall Street’s involvement in the multifamily rental market is significantly higher and dates back much further. After the Great Financial Crisis, institutional investors made a foray into the single-family rental space. With many homes facing foreclosure, these investors were able to scale quickly by purchasing homes in bulk at low prices. While they reaped substantial benefits, their actions also prevented the housing market from crashing.
The Concentration of Institutional Investment
Blackstone’s recent acquisition of Tricon Residential, a $3.8 billion deal, positions the firm as the third-largest holder of a single-family portfolio across the country. According to Parcl Labs, a real estate analytics company, Blackstone, along with Progress Residential and Invitation Homes, hold over 200,000 single-family homes nationwide. However, Jason Lewris, co-founder of Parcl Labs, points out that these investments are not evenly spread out.
He explains that nearly half of the national portfolio owned by these institutional investors is concentrated in just six U.S. housing markets: Tampa, Charlotte, Atlanta, Houston, Dallas, and Phoenix. Within these markets, the ownership is heavily concentrated in a few specific zip codes. This concentration can significantly impact the average buyer, especially when these firms can place all-cash offers as soon as a property hits the market.
The Root of the Housing Crisis
Despite the role of institutional investors, the real culprit behind the housing crisis is far more complex. The U.S. is grappling with a housing shortage, with estimates ranging from a deficit of one to six million homes. This issue has been compounded by the difficulty in building homes due to zoning laws and a shift in the American mindset towards development.
Moreover, the disparity between home price appreciation and wage growth over the last 30 years is a significant factor. Ermengarde Jabir, a senior economist at Moody’s Analytics, points out that the ratio of a median house price to median household income is now double what it was in the 80s. She concludes that while the role of institutional ownership is part of the problem, it is not the only issue.
As we continue to grapple with the question of affordable housing, it’s clear that the blame cannot be solely pinned on Wall Street. The issue is a complex mix of several factors, including government regulations, market dynamics, and broader societal changes. The path to the American dream, it seems, is far more complicated than it once was.
