Alex Milan Tracy/Sipa USA via AP Images
Newly constructed homes for rent in Southeast Portland, Oregon, in May 2020, are an example of the ‘built-for-rent’ trend in single-family homes.
Over the past week, the American political scene has done the unthinkable: It actually paid attention to the forces shaping our housing markets. Apparently spurred by a viral tweet that caught the eye of hillbilly elegist and would-be senator from Ohio J.D. Vance, political conservatives and liberals alike have been gripped with anger about Blackrock, the world’s biggest asset manager, “buying every single family house they can find,” distorting prices, and locking out families.
The topic trended on Twitter for the better part of a week, as liberals and conservatives and those in between bantered, mostly about how the development reinforced their prior thinking about housing markets. Vance decided that the left wouldn’t care about Blackrock’s antics because of its commitments to “‘racial audits’ and other diversity BS.” Tucker Carlson committed a segment to how Wall Street speculation was singularly responsible for creating a “serf class” of renters. The Onion jumped on the trend with a fake news item titled “Thrilled BlackRock Announces Purchase of 800,000th Dream Home.”
Almost none of this is true, not even the spelling of BlackRock, which only The Onion got right by capitalizing the R. A segment of the single-family rental market is indeed controlled by institutional investors, but that started in earnest a decade ago, when homes went on sale in bulk during the foreclosure crisis. The time to care about what this might do to our housing markets was then, not ten years later, when corporate landlords have matured into an entrenched asset class. Nobody should be claiming that this is the sole, primary, or even major reason for soaring housing prices. But it is a serious problem unto itself for the renters unfortunate enough to have to live in these homes. And it’s an indictment of political, activist, economist, and media elites for failing to catch on to the trend until it was way too late.
The triggering event for this mass freak-out about BlackRock appears to be a Wall Street Journal article from April about a new spurt of home purchases to convert into rentals. The name “BlackRock” appears in it once, as an aside, among “more than 200 companies and investment firms in the house hunt.” BlackRock, which mostly manages index funds and sells trading technology, owns about $60 billion in total real estate assets. It didn’t start financing other rental home purchases until 2015, five years after the market began in earnest. And according to its year-end financial statement, over 2020 it increased its real estate portfolio (which includes commercial real estate) by a whopping … $20 million. BlackRock’s asset funds that invest in other companies’ real estate or infrastructure (an unknown portion of this goes to residential housing) had a fair market value of $75 million in 2020, with $94 million unspent.
For context, the total value of U.S. rental housing was $4.5 trillion last year. Even the most expansive reading of these numbers, where literally every one of their real estate and infrastructure assets, direct or indirect, are residential homes, would give BlackRock no more than a one-ten-thousandth share of the market. In reality, it’s much less.
So using BlackRock as a metonym for institutional investing in housing betrays near-total ignorance about the situation. Boise, Idaho’s premier home builder Blackrock Homes probably has more of a toehold in the housing market than BlackRock does. It’s clear that their name was singled out because a lot of Biden administration officials migrated from BlackRock and it fits a conservative populist narrative about captured Democratic governance.
I am not particularly keen on letting BlackRock off the hook: “How BlackRock Rules the World” is a sample of my work on the subject. But I am cursed with actually knowing something about single-family rentals. I first started writing about them in 2012, after a report came out showing that 42 percent of the homes that fell into foreclosure in Oakland, California, from 2007 to 2011 went into the hands of institutional investors.
Since then, I’ve kept up with single-family rentals repeatedly, even devoting a chapter of my book Monopolized to it. The basic story is this: Investors targeted foreclosed fixer-upper properties in particular areas hard hit by the crisis, like Atlanta, Tampa, Phoenix, or inland Southern California. They put minimal funds into superficially renovating these properties, and rented them out, often to the same foreclosure victims forced to give them up. From the beginning, tenants have made the same complaints: Problems immediately arise with mold and vermin infestation, bad plumbing and heating; repairs are often impossible to get done; rents are jacked up without warning; hidden fees of questionable validity are larded on; evictions are pursued with the slightest provocation.
The time to care about what this might do to our housing markets was then, not ten years later.
This stands to reason when you understand the market proposition. By buying up homes in particular metro regions, corporate landlords can farm out upkeep to property managers. They securitize the rental revenue—a version of crisis-era mortgage-backed securities, only with monthly rental payments as the cash flow—and the demands require low vacancies, ever-higher rents, and assorted “cost savings,” which refers to not fixing the sink, really. These financial imperatives lead to the nickel-and-diming. An Atlantic article from 2019 detailed how supervisors at one company told staff to ignore repair requests as an official company policy. Recently, a renter told me that their corporate landlord uses the pandemic to deny coming out for repairs as a “public safety” issue, and only accepts rent through online payment, which includes a $10 hidden fee.
But the deep and severe inequities created by institutional investors does not mean the entire housing market is at their mercy. In 2019, over 247,000 homes were in the hands of large-scale investors. (Note that BlackRock isn’t on the list.) The biggest, Invitation Homes, was initially part of Blackstone, the private equity firm often confused with BlackRock. But Blackstone cashed out of Invitation Homes in stages, spinning the company off in an IPO. Both Invitation Homes, whose acquisitions of rivals have made it the biggest single-family rental firm with 82,000 properties, and its main competitor American Homes 4 Rent (52,000) are publicly traded companies. At most, investors purchased another 39,000 single homes in the back half of 2020.
Some context would again be helpful. There are 43 million rental properties in the U.S., and roughly 12 million single-family rentals. There are 80 million owner-occupied homes. In addition, most of the buying for single-family rentals was done in the early years post-crisis, when there were bargains to be had. Even The Wall Street Journal’s own chart in the original scare story that started this nonsense shows that there’s been almost no growth in the percentage of single-family rental units in the U.S. since 2016.
If there is competition from deep-pocketed investors, the theory goes, families get priced out of home-buying markets. I talked about this at length in a previous piece earlier this month, but the run-up in home prices is almost entirely due to a lack of inventory. There are a variety of reasons for this: builder trepidation after 2008, zoning laws that restrict home construction, a lack of preparedness for a pandemic surge in home-buying demand, and even a squeeze that shot up lumber prices, though that has mercifully dissipated. Investor activity is really only a small part of that.
Single-family rental prices are gaining at the fastest rates in 15 years. Investor activity also seems too small to affect the national average. But this is a little misleading; because corporate rentals are concentrated in a handful of areas, they have a higher percentage of all rental housing in those regions. More important, the world doesn’t run like an Econ 101 chart. There are information disparities, and corporate landlords are all too happy to exploit them.
Tenants are overmatched, outgunned, and alone as they try to battle faceless absentee owners, with little help from local tenant laws.
That’s how you get a situation where Invitation Homes and American Homes 4 Rent have increased rents of late at close to twice the national average. Econ 101 would tell you they don’t have the market power to do this, but that’s a surface-level viewpoint. We know from the Atlanta Federal Reserve that corporate landlords evict at much higher rates than mom-and-pops, as much as one-third of their properties in a calendar year. You can raise rates for vacant properties much more than for renewals. Moreover, companies like Invitation Homes try explicitly to fill niches of down-market homes where there’s a steady supply of renters to churn through. And the hidden fees and deferred maintenance make it more lucrative.
Corporate rental firms are certainly trying to expand market share, most recently through the “built-for-rent” concept, where entire subdivisions are constructed for the purpose of renting out the homes. But they don’t necessarily need a high market share to be profitable. With the rental securities flowing and vacancy rates under control, this is a mature asset class with lots of fans among investors. Maybe ten years ago, yelling about Wall Street landlord perfidy would have made a difference. There’s too much money invested in its success now.
Where were the profiles in 2012 and 2013, when like three of us were attuned to this? Where was the outrage when it could have made a difference? More to the point, who is really harmed by the rise of corporate single-family rentals? I would argue the renters, who suffer black mold, busted pipes, and find their own houses for rent on Zillow without their knowing it (this actually happened to someone I have spoken with). This tragedy has been unfolding for a decade; it didn’t sneak up on us. Tenants are overmatched, outgunned, and alone as they try to battle faceless absentee owners, with little help from local tenant laws. They’re the real losers here, not would-be home buyers struggling due to other factors.
I’m not telling you anything surprising by saying that Twitter memes don’t capture the whole story. But this was particularly egregious, and in its wrongness it revealed so much about how little elite actors think about the problems of ordinary people, in this case renters. Perverting the crisis of corporate single-family landlords to talk about housing supply or some other preoccupation just further reveals this neglect, and the desire to remain ignorant about what people go through in our over-financialized economy.
