The greed of Wall Street bankers pushing Americans out of the domestic market – AMAC





AMAC Exclusive – By Andrew Abbott

In March 2020, experts and academics predicted that the worsening of the COVID-19 pandemic would lead to a “massive fall in real estate”. Instead, it launched one of America’s hottest real estate markets. But while conventional wisdom held that the trend was the result of stimulus checks and historically low interest rates, a new report from Congress suggests another cause: Some of the world’s largest investment firms are buying single-family homes as fast as they can, threatening to turn America into a nation of tenants.

According to the report, which was released by the Oversight and Investigation Subcommittee of the U.S. House Financial Services Committee on June 28, a significant number of single-family home purchases over the past two years were made by large investment firms, not individual buyers. Analyzing a handful of key housing markets, the House subcommittee found that big companies were buying large numbers of homes at an unusual rate. For example, in the third quarter of 2021 alone, “institutional investors bought 42.8% of homes for sale in the Atlanta metro area and 38.8% of homes in the Phoenix-Glendale-Scottsdale area” , according to the report.

Unsurprisingly, the median selling price of a single-family home in Q1 2022 jumped nearly 25% from Q1 2020, rising from $329,000 to nearly $430,000.

This development is not welcome for potential buyers, as these companies – which include private equity giants like BlackRock and Invitation Homes, a $21 billion spin-off from Blackstone – have no plans to resell the houses on the open market. Instead, they hope to turn them into single-family rental properties, or “securitised SFRs.” The companies then hold the properties for rental and long-term investment purposes. With so many homes purchased, these companies would likely be able to set rental rates for all housing markets — and are already doing so in some areas, often raising rental rates by more than 10% each year. At the same time, a tight supply of homes on the market is driving prices up further, forcing potential first-time home buyers to forgo buying entirely and return to renting.

This business strategy dates back to the financial crisis of 2008. As the Congress report details, following the crash and subsequent collapse of the housing market, corporations backed by large investment firms began to seize houses whose value had massively depreciated, often taking advantage of the owners’ difficult financial situation. This effort was aided by the federal government, both through “wholesale sales of federally backed distressed mortgages and foreclosed properties” and “by providing Fannie Mae-backed financing.” In other words, the federal government lent money and sold lots of foreclosed homes to these investment banks, allowing them to become major players in the real estate market – a trend that accelerated more slowly in early and then rapidly during the pandemic.

The disturbing irony here is that it was these big investment companies and the federal government that caused the housing crisis. Until 2008, these companies pressured banks to offer subprime mortgages to Americans who could not afford them. The mortgages were then bundled together and sold as investment products for a large profit. When buyers defaulted and the market crashed, it triggered one of the biggest economic crises since the Great Depression. In response, the Bush and Obama administrations bailed out the banks – leaving millions of ordinary Americans to suffer.

In 2001, no investor owned more than 1,000 homes. While the report doesn’t reveal how many homes these institutions currently own, it does reveal that, from March 2018 to September 2021 alone, five institutional investor-backed companies purchased 76,235 single-family homes. The recent increase was likely due to the historically low mortgage rates offered during the pandemic, which benefited businesses and individuals alike. Over the past two years, many hopeful homebuyers have found themselves outbid by these investors, who could afford to offer cash up front and were ready to close immediately. Of the houses acquired by investors analyzed by the subcommittee, they found that the new landlords would immediately increase rents for tenants by nearly double, despite “diminishing housing quality over time.”

Home ownership has long been one of the most reliable ways to build generational wealth for families. With these new obstacles, many families may now be forced to seek other options. The report offers no clear solution on how to fix the problem – perhaps unsurprising given that government interference largely caused it in the first place. But as this crisis continues to deepen, our leaders must find a way to deal with it, lest the American dream slip further out of reach for millions.

Andrew Abbott is the pseudonym of a writer and public affairs consultant with more than a decade of experience in DC at the intersection of politics and culture.







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