The things that they do have massively outsized downstream impact contrasted against their relatively tiny overall participation in the market, and they can afford to behave in ways that manipulate the behavior of the majority.
If you can decouple them from the housing markets, you also decouple the interests of the donor class, and you allow for policy that doesn't maximize the cost of real estate over the interests of the majority of the population.
Raising prices when you only have a tiny portion of the market does not work. People won't buy them when there's another house for less.
Normal landlords don't have effectively infinite money with no forces bearing prices down, nor do they have the capabilities to influence markets. Even tiny percentage shifts can result in significant fluctuations in the prices consumers see. It's a very nuanced and complex system in which these institutional investors have very outsized influence.
I get why people like telling stories like this: it suggests there's a single boogeyman that can be dispelled to solve the affordability problem without painstakingly goring people's oxes state-by-state and municipality-by-municipality. But it's a fantasy.
If you can tell this story in simple step-by-step form, you will. I think you could tell a story about how a large corporate buyer clears out all the marginal buyers for some thin market like an individual subdivision or tranche of new construction housing in the Sun Belt. But I don't think you can tell a realistic story for them being "a huge driving force in setting and manipulating prices" across the whole market. I look forward to seeing your attempt, though.
Earlier you were arguing that investors were acting as marketmakers and now you say this. Marketmakers make their profit from the difference between buying and selling some asset. They don't want to hold prices, they want turnover. If investors really are acting as marketmakers it's actually a good thing because marketmakers have the effect of adding liquidity to a market.
You just haven't presented any evidence or even a hypothetical where this does or could happen.
> If they intend to purchase properties, it benefits them to depress pricing in the area
Yeah, that’s true of everyone but how would a bank/individual do that? By selling… But if they sell while they’re depressing prices, they lose money!
> Normal landlords don't have effectively infinite money with no forces bearing prices down
Neither do banks. They have quarterly earnings, tax bills, they need to buy more stock, cost of capital etc etc.
> It's a very nuanced and complex system in which these institutional investors have very outsized influence.
Just saying ‘it’s complex’ is trivially true. But, supply and demand isn’t some small factor in that calculation - it’s an iron law that exerts itself at all times.
If a bank wants to ‘manipulate prices’ then, without a monopoly, the only way to do that is to dump or buy. But if you buy up homes to ‘push up prices’ … then you end up with a bunch of homes which you paid more than their current value. Not a great business.
The person who has the real unfair advantage in the US happens to also be the most sympathetic person - the owner occupier.
Prices are high because we don't build enough houses which is mostly because it's really expensive to build houses, then the houses we have built are all owned by empty nesters and people with 1 - 3 investment properties.
Everything else you're describing is completely ridiculous.
There are many houses in the US. Not all of them are for sale. There's a difference between having a "tiny portion of the market" when you define "the market" as all houses in the US, and "tiny portion of the market" when you define "the market" as the houses that are actively being bought and sold. I would not be surprised if corporate involvement was a significantly higher proportion of the latter rather than the former.
It takes a lot less to put your thumb on the scale of the "liquid" portion of a stock if it is significantly smaller in size than the total stock.
In some dense urban areas, up to 10% of the local residential properties are owned by funds or investors. There's also overlap with investment networks where you're not getting to BlackRock levels, but you'll have a web of companies with mutual interests and a network of private debt and collateral, and these make up around 20% of the whole. For the most part, though, the majority of single family homes are not institutional. Even multi-family units, apartment complexes, and other rental properties are only in the ~10% range of institutional ownership, with the remainder owned by individuals, mom&pops, and small investment networks.
The conjunction of capabilities and incentives in combination with a huge buffer of wealth allows institutional investors to manipulate things in ways that aren't healthy for private home ownership, and the downstream social and economic impacts of being forced to rent, or hold debt that's not properly reflective of the value of the property.
We should impose reasonable policies that serve the interests of the people, and not simply maximize wealth building at the expense of citizens and families that would benefit from home ownership.
In this way houses are virtually unique in terms of financial vehicles and it introduces all manner of complexity and otherwise strange forces into the market. You can't simply treat it like any other commodified asset.
They're going to skyrocket in a seemingly irrational way. But it's completely rational. The reason is that they're a finite resource that is needed, and so there is very minimal price elasticity. People will pay as low as they can, but simultaneously must have oil and so have a practically uncapped price ceiling if that's all that's available. The same is true of housing.
You're right that people won't, generally speaking, buy a house for $100 when there's another one for sale for $80. But what you've done there is greatly increase the demand for that $80 house, which is now going to naturally send its price upwards.
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Finally there's the issue that figures on the percent of homes that are owned by investment groups are misleading, because they aren't just buying homes randomly. They're going to pick up lots of houses in precise areas, and so the impact on prohibiting this behavior will be dramatic in these areas.
Having lived through the various oil crises, I can confidently assert that there's a great deal of demand elasticity.
For example, when the 70s oil crisis hit, people stopped driving to the store for a loaf of bread, but would shop weekly instead. For another, people buy more fuel efficient cars when gas prices are high. For a third, people switch to electric cars.
There are regular major disruptions in the flow of oil. Pump prices change on a daily basis, and that results in the amount of gas available == number of gallons customers pay for. No gluts and no shortages.
When enough institutional investors are all doing that same thing, the market suppply becomes restricted, especially in focused regional areas. It ends up indistinguishable from collusionary antitrust, though there's no actual communicated collusion so it's not technically illegal. In a normal situation like that, all it takes is a single participant to cave and drops prices to take advantage of the demand. But in this case the institutional investors can keep taking the losses indefinitely so no one ever feels the need or benefit to "break" first, and they can maintain it forever.
Dropping the price of a house by a few percentage points can be the make-or-break for some families. And small changes in availability can have large impacts on price.
If we banned (or severely penalized) all entities from owning more than 5 residential homes, this would probably reduce cost by a few percentage points across the board. That's thousands of dollars.
Personally, I think unoccupied homes in general ought to be penalized (beyond just tax burden, an actual vacancy tax).
As is done in the UK
If you buy 60% of the properties on market, the rest will see this and adjust their own prices. Usually this only works when the macro is favourable (low interest rates, easy mortgage applications, etc.), but it is definitely a large factor. It sometimes creates a even hotter market, with people thinking that real estate goes up forever, then they sell.
You're right that it's not always large investment groups. Vancouver in Canada had the same thing happen, but mostly from foreign investors and criminals washing money. The latter was facilitated by politicians who cashed in big on this.
https://papersourceonline.com/wall-street-has-spent-billions...
https://www.kut.org/texasstandard/2022-06-14/texas-home-sale...
As others have pointed out housing markets are illiquid and tend to have a limited set of sellers at any given time such that the race-to-the-bottom doesn’t happen very often.
Rather, an institutional investor buys high on houses in desired neighborhoods then charge high rents on their portfolio. Subsequent sellers in the same neighborhood see the high closing price and ask for even more.
Does no one remember “drive til you qualify”?
> because their properties get leveraged, instrumentalized, and securitized, with derivative products, speculation, and all sorts of incentives that you don't normally want operating in the arena of housing.
> instrumentalized
> securitized
> with derivative products
> speculation
If you doubt they will lobby to increase their profit, try proposing anything that has a 0.1% risk of their property value going down and see how they react.
A rebuttal to that article from Derek Thompson: https://www.derekthompson.org/p/the-anti-abundance-critique-...
https://www.noahpinion.blog/p/corporations-arent-the-reason-...
Quoting Thompson:
"The U.S. has roughly 140 million housing units, a broad category that includes mansions, tiny townhouses, and apartments of all sizes. Of those 140 million units, about 80 million are stand-alone single-family homes. Of those 80 million, about 15 million are rental properties. Of those 15 million single-family rentals, institutional investors own about 300,000; most of the rest are owned by individual landlords. Of that 300,000, the real-estate rental company Invitation Homes—in which BlackRock is an investor—owns about 80,000. (To clear up a common confusion: The investment firm Blackstone, not BlackRock, established Invitation Homes. Don’t yell at me; I didn’t name them.)
Megacorps such as BlackRock, then, are not removing a large share of the market from individual ownership. Rental-home companies own less than half of one percent of all housing, even in states such as Texas, where they were actively buying up foreclosed properties after the Great Recession. Their recent buying has been small compared with the overall market."
Spoken like someone has no clue what they are talking about and just throwing out jargon
If cocoa prices spike, you buy less chocolate. If housing prices spike in your job market, your options are: pay more, endure a brutal commute, or uproot your life. The demand is far more inelastic.
I can easily live a full and meaningful life without owning gold, drinking cocoa or eating mustard. Those aren't essential and have decent substitutes.
Electricity is essential, just like housing and it's very highly regulated.
If you're going to use "housing" as an umbrella for its substitutes, let me do the same. Instead of wheat, beef, pork, cocoa, sugar, etc, let's call that "food". So now food is as essential as housing. Why doesn't the housing complaint against speculators work for food speculators?
The gobbledygook you posted, “ properties get leveraged, instrumentalized, and securitized, with derivative products, speculation, and all sorts of incentives that you don't normally want operating in the arena of housing”, is just that, gobbledygook.
Just because a buyer as Inc. behind its name doesn’t give it magical powers to set market prices.
If you think it does, then please explain it to us like we are really slow.
https://www.milliman.com/en/insight/mortgage-market-and-hous...
https://www.sifma.org/issues/market-structure/housing-financ...
How do you think homeowners would feel about a policy that doesn't maximize the value of their homes. That's just another way to phrase "maximizing the cost of real estate"?
I mean BlackRock and Blackstone creating securities backed by real estate in general, not only single family homes.
What if this new type of asset signals to the broader real estate market that regulators favor large investors?
Even more likely, what if this new type of asset succeeds at the expense of first time home buyers?