We’ve heard it before: “The 2008 real estate crash resulted in more than 7 million foreclosed homes.” But what does this number represent in real terms? It means 7 million home owners whose creditworthiness has plummeted, leaving them unable to again enjoy homeownership.
Where have they all gone?
It would seem, to renting. More than 100 million Americans are renters. Never before in history has the business of renting single-family homes been more centralized, thanks to behemoth investors like Blackstone setting the pace. From individual investors purchasing just a few properties to multibillion dollar hedge funds buying thousands, the rental market has become big business. Multiunit landlords are enjoying access to bank financing at the same time that many homeowners – especially blacks, Hispanics and the under-40 crowd – are being denied.
Is this a welcome trend?
Thomas Lawler, an economist and formerly with Fannie Mae, stated, “Early buying by investors actually did serve a public purpose [by soaking up vacant foreclosed homes]. Now it’s just free-market capitalism and big money is coming in because they have an advantage. It’s gone from being good to being disturbing.”
In 2005, Lawler was one of a handful of analysts warning of a housing bubble fueled by easy credit and a mindset shift toward homes-as-investments rather than homes-as-shelter.
Will the Renting Trend Ultimately Hurt Americans?
As the size of real estate investment firms grows, so does the risk for former homeowners. It is too early to say with certainty whether national landlords, with their easy access to capital and loans, can keep on outbidding first-time homebuyers. We don’t know what impact these practices will ultimately have on the cost of rentals. The potential exists for property prices to be driven up, setting the stage for another housing bubble. As well, absentee landlords don’t have the best track record in home repairs – they can’t appear at 3 a.m. to fix a busted pipe. But the real tragedy is that such strong competition from national property management firms may deprive deserving American families of the wealth-building opportunities inherent in home ownership.
Effects on Low Income Tenants
While renting a lovely home has proven to be a terrific solution for displaced homeowners, some trends are less welcome. For example, an August 2013 report from Bloomberg reveals that corporate investors such as Blackstone were already beginning to turn away low income tenants on government housing assistance. An October Bloomberg report stated that Hedge fund Magnetar Capital LLC had purchased hundreds of homes in Huber Heights, OH, then pushed for property-tax cuts that would have decimated the school district’s budget.
If history proves anything, it is that balance is needed. Americans who truly can afford to buy homes should not be denied, and real estate investors should be allowed to play, as long as greed is kept in check and fairness for all rules.
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I am the CEO of EquiAlt: real estate based alternative investment firm with activities in equity, debt and private equity. Since 2008, EquiAlt's management has demonstrated a high level of competence in hundreds of distressed asset transactions, recapitalized companies while lending on landmark Las Vegas projects.
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