Buying Out the American Dream
Homeownership has customarily been one of the core and fundamental pillars of the American dream. The financial benefits that accompany homeownership are plentiful and include the ability to accumulate wealth, access to credit, the accumulation of long-term savings over the cost of renting, and the potential reduction in housing costs through mortgage interest deduction. Home and other asset ownership conventionally improve the well-being of families by empowering them to increase their prosperity and delegate wealth to future generations.
Further, owning a home interlaces an individual with their community, providing them a stake that renting simply cannot bestow. It encourages individuals to maintain a commitment to the betterment of the neighborhood. If you have a financial investment in the community, the plausibility of you maintaining a commitment to ensure the community continues to flourish is likely far greater.
While the appeal of homeownership remains a priority for many Americans, the attainability of such a goal is steadily becoming loftier and out of reach for a majority of younger generations. In 2020, the Los Angeles Times reported that currently more than 67 million U.S. homeowners are over the age of 55, while a 2018 report by Urban divulged that the homeownership rate among millennials aged from 25 to 34 is eight percentage points lower than baby boomers, and 8.4 percentage points lower than Gen Xers within the same age group.
There are many reasons for this grim manifestation ranging from the increased cost of living, the rising debt in younger generations, hidden homeownership costs, and even the glamour of traveling that appeals to many millennials. However, perhaps the most sinister and intrinsically dangerous justification for the millennial decline in homeownership is that the American dream is simply being bought right out from under them.
In the first quarter of 2021, one in every seven home purchases was made by an institutional investor (asset managers, pension funds, foreign sovereign wealth funds). Among other things, this prices perspective middle-class homeowners out of the marketplace. HousingWire reported that investor purchases of single-family homes in 2021 rose 4.8% year over year in the first quarter, while investors maintained the largest market share in the multifamily sector by buying 25.8% of multifamily properties that sold. Investors acquired the largest share of lower-priced homes (20.8%), compared to 12.5% of high-priced homes and 11.3% of mid-priced homes. These investors typically pay in cash and often 50% above the asking price, while devouring entire neighborhoods by transforming them from middle-class homes into rental properties.
The New York Post has reported that since 2010, 700 houses in Spring Hill, Tennessee have been purchased by just four companies. These investors now own roughly five percent of total houses in the town and have raised occupants' rent in some instances by 35%.
Spring Hill is not alone. Cities with the highest market share of investor purchases in the 2021 third quarter included Atlanta (32%), Phoenix (31.7%), Jacksonville (28.3%), and Miami (28.1%). These particular locations are not by accident. Investors are set on purchasing homes in appealing neighborhoods with access to exceptional school districts. These are the same neighborhoods many young couples seek out when they are looking to start and/or raise a family.
As corporate homeownership continues to pay top dollar to purchase single-family homes while subjecting tenants to higher living costs during the process, America is quickly becoming a renter nation. These investors are stripping potential homeowners of a place to call their own while robbing them of a pivotal fragment of the American dream in the process. Home-price appreciation has on average been the mechanism behind Americans achieving financial expansion, and these investors are shamelessly bankrupting them off this opportunity.
However, perhaps the largest player entrenched in the U.S. real estate market is Blackstone, a giant private equity firm, as well as the largest landlord in America and real estate company worldwide. Blackstone has $881 billion of assets with real estate being its largest focus area, with $279 billion of investor capital under management across a $514 billion global real estate portfolio. Relying on billions in credit from big banks, Blackstone has made a habit of buying tens of thousands of homes at deeply discounted prices and then turning them into single-family rentals. Another merciless attempt at undercutting the middle class.
For decades, homeownership was an emblem of duty, responsibility, and a means of security for endless middle-class families across the nation. However, through financial greed, untapped narcissism, and unchecked power, investors have become committed to metamorphosizing America into a nation of renters, inevitably killing the middle class in the process.
Why do investors insist on trotting such a reckless course? There could be many reasons, but apart from the vast increase in wealth that no investor or corporation has ever shied away from accumulating, it comes down to control. If the average American is driven out of the housing market, and the bulk of the available housing is owned by investors and cooperations, Americans now become bound to their rule, beholden to the investor, and free of any independence or individual liberty.
Remember when the WEF said, “You will own nothing and be happy?”
Correction: Christopher Beattie of the Black Rock Corporste Communications team informs us that a report this article cited that "Over the past decade, the corporation has bought more than 80,000 single-family houses" is incorrect:
BlackRock does not buy single-family houses. Please see below for a link to a website we recently launched in response to such inaccurate claims and misperceptions regarding BlackRock and the housing market.
BlackRock is an active investor in the U.S. real estate market, but we are not among the institutional investors buying single-family houses.
We regret the error that relied on a published report elsewhere.
J.B. Cohle is a graduate student
Image: American Advisors Group