Great piece - thanks for sharing and spot on. We need more institutional investors who see the value of making long term investments (ie. no NINJA loans or synthetic CDOs) in affordable housing.
Thanks, Bob!—and you raise a good point about the potentially *positive* intentional role that institutional investors play in expanding housing access.
I think part of the challenge here is that defending private equity, venture capital, etc. in housing puts you in the uncomfortable position of defending actors who have done a lot of harm in various other sectors -- healthcare being the most obvious one but of course everything else from media to transportation etc. While the scale of PE and VC can be extremely useful, it can also distort markets in a way where there's kind of no going back.
Given that situation, I think sounding the alarm is actually reasonable, even if the stats in 2025 are --as you point out -- not so bad.
In a friendly pinky bet way, let's talk about this again in 2050 and see what the housing landscape looks like.
Ha! I'll take the bet—let's hope we can both remember what we were doing 25 year ago then!
No doubt there have been bad actors, but I am skeptical of the broader claims about the industry. My sense of the research on PE's buyout track record is that it's mixed, including in healthcare; but I haven't done a deep dive. My last exposure to the industry was, believe it or not, when I worked in education: there was a lot of PE interest in private schools (another "scarcity opportunity").
My general rule of thumb is that corporate actors, just like people, respond to incentives and constraints—so I try to understand what those are. Reusing the example of the banks, the incentive structure during the housing bubble rewarded bad behavior and penalized scrupulous actors. We should penalize bad behavior, and change the incentive structure to encourage good behavior—but either way we still need banks! So, I wonder what those incentives might be that lead to perceived or real bad outcomes in regards to PE buyouts. Tax policy? Labor policy? Something else? I'm not really up for that kind of research project right now 🤓, but I'd be asking those questions first.
We’ve also made it too hard for individual home buyers to have making that investment to upsize the dwelling capacity of their properties make good economic sense. The rental of new residential space created on a property that you also live on should be encouraged.
Alas, just cause eviction and related measures build in a strong disincentive to Citizen Developers.
Although I see and can understand the point you are making around institutional investment not being the boogieman it's often made out to be in the real estate market, I wonder what you think about the role banks play in it. According to Realtor.com (dubious source but likely accurate enough for this), 60%+ of U.S. homes are under mortgage or, essentially, still bank owned, which I would consider to be a major institution. As you note, 2008 became such an opportunity for institutional investors because the banks played fast and loose with the credit they're providing. Similarly today, we see mortgage rates and credit constraints dictating much of what is or isn't affordable as well as whether people want to sell at all. At any rate, I do appreciate this take and enjoy anyone who seeks to share truth, even inconvenient ones.
The banks are certainly institutions, but they wouldn't be considered corporate landlords or institutional investors unless they were buying homes outright (the property title is in the hands of the homeowner, unless the bank forecloses). So they would be excluded from any of the figures I cited.
The operating environment leading up to 2008 was, I think, all-around pretty corrosive to financial markets, and there were a lot of bad actors. But federal policy was also actively and recklessly encouraging the American Dream of Homeownership(TM) and facilitated a widespread deterioration in lending standards and practices. The banks believed that the government would bail them out, and so they behaved accordingly. Sadly, it turned out they were right: not only did we bail them out, we basically codified "too big to fail" as official policy. This was bad.
Having said that, banks play a vital role in real estate development and homeownership. Without well-capitalized lenders, very few homes would be built, and only those individuals with the cash to buy them would own. So, the problem isn't banking per se, but bad policy that encourages/rewards bad behavior.
Property ownership entails great responsibility that can be solved with combinations of labor and capital. This true for landlords and homeowners. Not all property owners are up to the challenge. A part of the housing solution is making people aware of the true costs of property ownership so that landlords and homeowners will not overleverage.
"Both studies show similar tradeoffs: renters and homesellers gain; would-be first-time buyers lose."
I feel like you are missing the point? The problem is ultimately landlords owning more, and capturing the value instead of owner/occupiers. Given that a house is the biggest asset for personal savings in this country, that really locks in inequality.
“ institutional investors own 0.675% of all single-family homes in America.”
That one simple sentence should end the discussion right there.
Indeed!
Everyone wants a bad guy to target, even if there isn’t one.
It's easier than doing the hard work of fixing the problem!
Exactly!
Great piece - thanks for sharing and spot on. We need more institutional investors who see the value of making long term investments (ie. no NINJA loans or synthetic CDOs) in affordable housing.
Thanks, Bob!—and you raise a good point about the potentially *positive* intentional role that institutional investors play in expanding housing access.
I think part of the challenge here is that defending private equity, venture capital, etc. in housing puts you in the uncomfortable position of defending actors who have done a lot of harm in various other sectors -- healthcare being the most obvious one but of course everything else from media to transportation etc. While the scale of PE and VC can be extremely useful, it can also distort markets in a way where there's kind of no going back.
Given that situation, I think sounding the alarm is actually reasonable, even if the stats in 2025 are --as you point out -- not so bad.
In a friendly pinky bet way, let's talk about this again in 2050 and see what the housing landscape looks like.
Ha! I'll take the bet—let's hope we can both remember what we were doing 25 year ago then!
No doubt there have been bad actors, but I am skeptical of the broader claims about the industry. My sense of the research on PE's buyout track record is that it's mixed, including in healthcare; but I haven't done a deep dive. My last exposure to the industry was, believe it or not, when I worked in education: there was a lot of PE interest in private schools (another "scarcity opportunity").
My general rule of thumb is that corporate actors, just like people, respond to incentives and constraints—so I try to understand what those are. Reusing the example of the banks, the incentive structure during the housing bubble rewarded bad behavior and penalized scrupulous actors. We should penalize bad behavior, and change the incentive structure to encourage good behavior—but either way we still need banks! So, I wonder what those incentives might be that lead to perceived or real bad outcomes in regards to PE buyouts. Tax policy? Labor policy? Something else? I'm not really up for that kind of research project right now 🤓, but I'd be asking those questions first.
We’ve also made it too hard for individual home buyers to have making that investment to upsize the dwelling capacity of their properties make good economic sense. The rental of new residential space created on a property that you also live on should be encouraged.
Alas, just cause eviction and related measures build in a strong disincentive to Citizen Developers.
Although I see and can understand the point you are making around institutional investment not being the boogieman it's often made out to be in the real estate market, I wonder what you think about the role banks play in it. According to Realtor.com (dubious source but likely accurate enough for this), 60%+ of U.S. homes are under mortgage or, essentially, still bank owned, which I would consider to be a major institution. As you note, 2008 became such an opportunity for institutional investors because the banks played fast and loose with the credit they're providing. Similarly today, we see mortgage rates and credit constraints dictating much of what is or isn't affordable as well as whether people want to sell at all. At any rate, I do appreciate this take and enjoy anyone who seeks to share truth, even inconvenient ones.
The banks are certainly institutions, but they wouldn't be considered corporate landlords or institutional investors unless they were buying homes outright (the property title is in the hands of the homeowner, unless the bank forecloses). So they would be excluded from any of the figures I cited.
The operating environment leading up to 2008 was, I think, all-around pretty corrosive to financial markets, and there were a lot of bad actors. But federal policy was also actively and recklessly encouraging the American Dream of Homeownership(TM) and facilitated a widespread deterioration in lending standards and practices. The banks believed that the government would bail them out, and so they behaved accordingly. Sadly, it turned out they were right: not only did we bail them out, we basically codified "too big to fail" as official policy. This was bad.
Having said that, banks play a vital role in real estate development and homeownership. Without well-capitalized lenders, very few homes would be built, and only those individuals with the cash to buy them would own. So, the problem isn't banking per se, but bad policy that encourages/rewards bad behavior.
LVT would fix this.
Property ownership entails great responsibility that can be solved with combinations of labor and capital. This true for landlords and homeowners. Not all property owners are up to the challenge. A part of the housing solution is making people aware of the true costs of property ownership so that landlords and homeowners will not overleverage.
"Both studies show similar tradeoffs: renters and homesellers gain; would-be first-time buyers lose."
I feel like you are missing the point? The problem is ultimately landlords owning more, and capturing the value instead of owner/occupiers. Given that a house is the biggest asset for personal savings in this country, that really locks in inequality.