Owning a primary residence is the greatest source of wealth for middle-class Americans, and has been for a long time.
A whole set of public policies – from tax breaks on mortgage payments to local zoning that favors single-family homes over apartment buildings – has been built around encouraging homeownership. This is why the recent entry of well-capitalized investors into the single-family home market is of such concern to so many.
Young couples are now in competition with more than 200 companies, from tech startups to fund managers and rental platforms, to buy homes at record prices. If you want as many ordinary people as possible to be able to afford a house and accumulate their wealth like the previous generations did, have investors who can spend tens of thousands of dollars above asking price and paying in cash everywhere in the market is certainly not an encouraging development. But how much of a problem is the entry of permanent capital into the housing market? Here is what we know.
The share of homes that investors buy is not huge.
According to Slate, private investors bought 15% of US homes for sale in the first quarter of 2021. That’s a significant figure, but not overwhelming in and of itself, but what matters is that it’s not as if that 15% was distributed evenly across the country. The reality is that some people in certain areas are stuck with the new competition.
They target a class of properties that are particularly important for middle-class families.
The best investment opportunities are Relatively inexpensive single-family homes built since the 1970s in growing metropolitan areas, the very homes that young middle-class and middle-class buyers have traditionally been able to afford in cities like Atlanta, Phoenix, Houston, and Las Vegas in which they most want to live, often because those cities have the best employment opportunities with costs of living that are considerably lower than cities like New York and San Francisco. That’s what the big investment firms are targeting, and it’s bad for middle-class families.
Having billions of dollars isn’t the only benefit of corporate homebuyers.
One of the leading companies in the residential market, Invitation Homes, can get a billion dollar loan from the federal government at an interest rate of about 1.4%. Average mortgage interest rates are typically 2-4%. This means that the large company can accept a purchase price of $ 5,000 to $ 20,000 more, depending on Slate, while paying exactly the same actual cost as the individual owner. And their offers are usually all in cash, an added advantage they have over regular people.
The net effect on working and middle class Americans is bad.
The companies that buy these homes typically turn them into rentals, which, in a country with weak tenant protections, means more people in more precarious living situations, without proper maintenance, and at risk of rent increases and hardship. evictions.
Having to outbid these huge companies also means that fewer people can take advantage of the various government grants that exist for first-time buyers. Much of the racial wealth gap in this country is due to the deliberate denial of these grants to non-white borrowers, and it’s easy to see how a similar gulf between the rich who fund these businesses and the aspiring buyers who can’t the more afford them (a group of non-white Americans are more likely to be in it, thanks to the aforementioned racial wealth gap) could grow.
In addition, investing in houses that are reliable and profitable investments means that the rich do not invest their money in other, often riskier businesses, which have more diffuse advantages: starting a business that employs people, investing money in research and development that produces useful innovations. , and other investments that could indirectly benefit the working class instead of extracting money from them as owners.
But in the end, that excludes people from one of the most traditional ways to get rich – buying a home. When the housing market works better for businesses, which can then deny ownership to others by offering the properties only as a rental, for example, families cannot be successful and prosper.