What happens when private equity buys homes in your neighborhood

Summary

This comes from the Planet Money newsletter. Subscribe now to get more insights into how our economy works delivered to your inbox each week. Daniel Erb became a corporate landlord kind of by accident. It started in 2020, when he received his first bonus as an investment banker. It was more money than he was used to. He wanted to invest in real estate, so he called his cousin, a research analyst at BlackRock, for advice. As they talked over options, his cousin showed him a striking chart of the number of "housing starts" in the U.S. since 1950 (basically the number of new houses and apartments built each year). It showed that the last 10 years had the fewest starts since the 1960s, even though the U.S. population was now much larger. It was a full decade of underinvestment. They focused on single-family homes — the classic house with a yard, often in the suburbs. "I'm a millennial," says Erb. "I've always envisioned having a home." But none of his friends had bought a house yet. Neither had he. Contemplating this lack of new houses and rising demand from millennials like him, he saw "a big opportunity … something that I was willing to spend my career on." So Erb and his cousin raised money from investors, bought homes in places like the Chatham-Arch neighborhood in Indianapolis (which was affordable, had a growing population and was benefiting from redevelopment), and rented them out — presumably to people who wanted a house with a yard but couldn't afford to buy one. Erb says it was a profitable business. He was not the first New York finance person to profit from single-family rentals across the United States. The private equity firm Blackstone (commonly confused with BlackRock) more or less invented this buy-to-rent strategy in 2012, under the moniker Invitation Homes. It's now a public company valued at more than $18 billion. The response to this development — of Wall Street buying Main Street, or at least some of its cul-de-sacs — has been bipartisan, populist ...