The Rise of the Corporate Landlord

“This is all part of a long-standing trend: As inequality in the United States increases, the financial elite invests less in the types of things that could create jobs, like R&D or new factories, and more into directly extracting wealth from the working class. One way to do that? Becoming their landlords”.

• Elena Botella, Slate Magazine

Why It Matters

• The GDP gives a false assessment of the state of a nation’s economy.

• The accurate measure of the state of a nation’s economy is the ratio of median household income to median housing prices.

• Median housing prices can only be 2.29 times media household income, if workers are to afford housing.

• According to Bloomberg news, home prices in some U.S. cities are now almost 10 times what the median household earns.

Politicians wrongfully claim that increasing GDP and job growth are the measure of a healthy economy. Many economists wring their learned hands at why so many voters don’t understand how good they have it by these numbers. That includes elite Democrats like economist Paul Krugman. He posed a question in the title to one of his articles in the New York Times, Why Are Americans So Negative About the Economy? Jobs are up, inflation is down, and wages have kept pace with prices, he says.

But wages have not kept pace with the most important price–housing.

While worker pay has stagnated when adjusted for inflation, some housing prices have increased unnecessarily. In this chapter, we will look at several critical factors by which the predatory rich increase the price of single-family dwellings — many of which can be stopped.

Big Money Discovers Big Profits

This is the story of how there was a housing price recovery after 2008 without a homeowner recovery.

According to Aaron Glantz in his book Homewreckers, as the public was becoming aware of the likelihood of a housing market crash in 2008, Donald J .Trump cunningly saw an opportunity for those that had the wealth to take advantage of it. “I sort of hope that happens because then people like me would go in and buy,” he said.

That is precisely what many wealthy investors did through corporations, hedge funds, and Real Estate Investment Trusts (REITs). In A $60 billion Dollar Grab by Wall Street, The New York Times Magazine reports that, “Before 2010, institutional landlords didn’t exist in the single-family-rental market; now there are 25 to 30 of them, according to Amherst Capital, a real estate investment firm”.

Tim Henderson of Stateline writes that, according to data provided by CoreLogic, a California-based data analytics firm:

• From their purchases of the 2008 foreclosures, investors realized that the single-family home rental market was highly profitable.

• Investors increased their percentage of homeownership rentals each year so that in 2021, investors bought 24% of single-family dwellings.

In 2021, real estate consulting firm John Burns urged investors to get on the bandwagon of buying juicy single-family rentals. The smart money was going there. It identified 43 announcements totaling more than $30 billion in capital that was targeting US rental housing that year. One of the reasons Burns gave for recommending investing in single-family housing: “Record high rent growth”.

Doug Brien, the CEO of Mynd Property Management, confirmed the recommendation to buy housing because of its profitability. He told Hanna Ziady of CNN, “Single family as an asset class didn’t just fare well, it shined,”

According to MetLife Investment Management institutional investors may control 40% of U.S. single-family rental homes by 2030.

High Rents Reward Rich Landlords

Why is the new asset class of the single-family rental so tantalizing? The investors make money on rising home values while tenants cover the mortgages.

According to Invitation Home’s SEC filings in 2021, its portfolio of homes is worth $16 billion. The company collects about $1.9 billion in rent per year. That means it pays off the purchase price of a house from rental payments in eight years. An individual homeowner typically takes about 30 years to pay off their mortgage.

The investor now has the full value of the house as an asset, and it continues to bring in high rental income.

Next post: More on how the single-family residence investment has become an engine of inequality; a new haven for many money laundering and tax dodging, how the proposed reform legislation will be ineffective (again), and a straightforward effective solution.