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The Coming Nightmare of Wall Street-Controlled Rental Markets

As more Americans rent instead of own, private equity groups move in for the kill.

Photo Credit: blackstonegroup; Screenshot of Dallas Tanner, Invitation Homes's Chief Investment Officer / YouTube.com


In a 2011 report, Morgan Stanley analysts proclaimed that America was experiencing a transition from an ownership society to a “ rentership society.” “The combination of falling home prices, limited mortgage credit, continued liquidations and better rental options is fundamentally changing the way Americans live,” says the report, concluding, “We believe this change is only beginning.” For Wall Street firms, the Morgan Stanley report appears to have become a self-fulfilling prophecy: Seeing a profitable opening in the wake of the foreclosure crisis, investment groups have worked diligently to bring a “rentership society” into being. During the past two years, investors have bought approximately 200,000 single-family homes, mostly foreclosures, in urban areas nationwide, with plans to convert them into rental properties. In Atlanta, one such investment group purchased 1,400 homes on a single day in April of last year.

This investor-led feeding frenzy has sent home sales and prices rising again, leading some commentators to hail a “robust housing recovery.” But it’s one that’s happening largely without homeowners. In the final months of 2013, the rate of homeownership dipped to an 18-year low of 65.2 percent, down from a 69.4 percent peak prior to the 2007 financial crisis, according to U.S. Census data.

Some commentators have chalked this trend up to itinerant millennials who choose renting over buying as a matter of preference. But growing numbers of older Americans are also finding themselves renting due to wrecked credit, continued unemployment or the inability to outbid deep-pocketed investors. And while the “American Dream” of homeownership has always been an exclusionary one, out of reach for millions of people of color and working-class whites, a rental market controlled by Wall Street could easily turn out to be a nightmare for all.

In the new rentership society, the largest landlord of them all is the Blackstone Group — which, with $266 billion in assets, is also the world’s largest private equity firm. Through a survey of Blackstone-owned rental homes in Chicago, as well as interviews with housing advocates and policy researchers, In These Times discovered a slew of concerns related to this new investor-owned housing stock. Tenants report poor conditions and attempts to evade responsibility for maintenance that appear to violate city ordinances. Moreover, housing advocates worry that investors’ long-term presence in recovering neighborhoods will speed gentrification and shift the balance of power away from communities, to faraway Wall Street landlords.

The new landlord on the block

Long a bête noire for progressive activists because of its history of buying out troubled companies and then shipping jobs overseas, Blackstone began its foray into real estate in 2012, when it created a subsidiary called Invitation Homes to purchase and manage single-family rental homes. Invitation Homes has since become the largest owner of single-family homes in the United States, spending more than $7 billion to gobble up 41,000 properties.

(Full disclosure: Two authors of this story, Michael Donley and Carmilla Manzanet, had a personal encounter with Invitation Homes last year when the company evicted them from the home they were occupying. Read that story here.)

Invitation Homes claims on its website that by removing vacant, foreclosed houses from the market, it is reducing blight and “providing a much-needed service for communities across the nation.” But Blackstone is backed by a host of companies that bear direct responsibility for the foreclosure crisis, including Morgan Stanley, CitiBank and Bank of America. After first making money from the housing bubble that crashed the economy, then benefitting from the federal bailout, banks and investors now stand ready to profit all over again by cleaning up the mess they made.