By Roland Murphy for AZBEX
Backlash is growing over the rising number of institutional investors entering the housing market as they search for yield in an inflationary economy awash in capital.
According to a recent article in GlobeSt.com, Ohio Democratic U.S. Senator Sherrod Brown, who chairs the Committee on Banking, Housing and Urban Affairs, said investors and asset management institutions are taking advantage of an allegedly “captive” housing supply situation to increase their returns.
GlobeSt.com quotes Brown as saying, “Private equity firms, corporate landlords and investors saw a shortage, and they saw a captive market. They see these [single-family houses] as nothing more than annual return on equity,” during a Committee hearing.
Brown also referred to the growing presence of institutional investors looking to capitalize on the current nationwide market forces of high demand and short supply, fueled by labor shortages, supply chain issues and inflated materials prices as a “land grab.”
The article noted Blackstone Group left the single-family rental market in 2019 and then reentered with a $6B deal to buy Home Partners of America, which held a portfolio of more than 17,000 units.
Debt and equity staked in single-family rentals by investors totaled roughly $30B in 2021, and around 100,000 SFR units started construction around the country last year.
However appealing the specter of an institutional monster standing like some evil capitalist ogre or boogeyman on the flattened backs of the American homebuyer may be, and however much political hay can be made from painting that image, it has already been shown to be more comforting myth than cold market reality.
An article in Vox last year covered BlackRock’s activity in the sector and the resulting demonization of investors inflating housing prices that has, “yanked the dream of homeownership out of the desperate, clutching hands of millions.”
Vox then went on to point out the comparatively small role institutional investors play in housing market, particularly in single-family, making up only an estimated 20% of sales. While concerns about cash buyers reducing opportunities for traditional mortgage-based buyers have a basis in reality, the article notes the real issue driving up prices is not “iBuyers” and assest funds.
Simply stated, “The idea that institutional investors are somehow largely to blame for the current housing market catastrophe is wrong and obscures the real problem. Housing prices have been skyrocketing due to historically low supply, low mortgage rates, and the largest generation in American history entering the market looking for starter homes.”
It’s easy to rail against heavily capitalized institutions potentially making an already difficult and multifaceted problem more cumbersome. What is not easy is addressing the real underlying issues of monetary policy, inflation, three decades of under-promoted skilled trade education, global supply chain constriction, and bureaucratic impediments to new supply delivery.
Rather than inventing boogeymen to keep voters afraid and direct their anger and frustration elsewhere, perhaps Sen. Brown and other leaders at the local, state and national levels could better serve their constituents by trying to slay the real monsters in the room.