How Private Equity Is Changing Housing

Summary

We have a housing crisis, as you probably, painfully, know. Wouldn’t you like to have someone to blame for it?The United States is short 4 million housing units, with a particular dearth of starter homes, moderately priced apartments in low-rises, and family-friendly dwellings. Interest rates are high, which has stifled construction and pushed up the cost of mortgages. As a result, more Americans are renting, and roughly half of those households are spending more than a third of their income on shelter.This crisis has many causes: restrictive zoning codes, arcane permitting processes, excessive community input, declining construction productivity, expensive labor, and expensive lumber. And, some say, the aggressive entry of private equity into the housing market. Institutional investors have bought up hundreds of thousands of American homes since the start of the coronavirus pandemic, outbidding families and pushing up rents—a trend lamented by everyone from Alexandria Ocasio-Cortez to J. D. Vance.Casting private equity as a central villain in the country’s real-estate tragedy makes intuitive sense. Who’s going to win in a bidding war for a three-bedroom in a suburb of Cincinnati: a single-income family with a scrabbled-together 10 percent down payment or a Wall Street LLC offering cash? Still, housing economists and policy analysts have argued that institutional investors have played at most a bit part. Supply constraints began cropping up on the coasts a generation ago, if not earlier, whereas Wall Street started buying up significant numbers of homes only after the Great Recession and especially after the pandemic. Moreover, even if big investors are purchasing thousands of homes, they don’t own significant numbers of homes compared with small-scale landlords and individuals.Rogé Karma: The secretive industry devouring the U.S. economyYet in some markets, the balance has shifted. Last month, the Lincoln Institute of Land Policy and the Center for Geospatial Solut...