Have you heard the one about the "recovery" in the Housing market? It's less a "recovery" than a boon for hedge funds buying up distressed properties, cornering the market for the same inexpensive housing that would normally draw first-time homebuyers of the non-hedge fund variety:
Insatiable demand from hedge funds, private equity investors and foreign buyers, all armed with ready cash, are elbowing first-time buyers out of the housing market.
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First-time buyers tend to purchase lower-priced homes, but all-cash investors have cornered the market on those, leaving little behind....The phenomenon is putting up another roadblock for young Americans already assailed by high student loan debt, poor wage growth and less-than-pristine credit.
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First-time homebuyers, historically about 40 percent of the market, accounted for just 27 percent of sales nationally in December, the lowest since the National Association of Realtors began tracking this cohort in 2008.
So, the same vultures whose sub-prime greed led to the housing crash of 2008 are swooping back in to feed on the distressed properties their banker buddies foreclosed on when the Great Recession forced thousands of people out of their homes.
Are the hedge fund managers and "private equity investors" turning around and selling these homes? Noooooo! They're renting them out to people who've been skewered by the recession, debilitated by student loan debt, working for stagnant wages and are no longer able to purchase a home. And assuming they can establish their creditworthiness, those who can afford a down payment are unable to find something that hasn't already been bought up by speculators and, interestingly, "upper middle class" Chinese.
In fact, the country's largest landlord is now the Blackstone Group. Their Wikipedia entry doesn't inspire much faith in terms of their concern about renters:
The Blackstone Group L.P. is an American multinational private equity, investment banking, alternative asset management and financial services corporation based in New York City. As the largest alternative investment firm in the world,[2] Blackstone specializes in private equity, credit and hedge fund investment strategies, as well as financial advisory services, such as mergers and acquisitions (M&A), restructurings and reorganizations, and private placements.
What happens when a hedge fund becomes a landlord? Well, as you might suspect, they're not going to answer the phone when you call about your pipes breaking. No, that work is farmed out to a third party contractor, often based hundreds of miles away.
While firms like Blackstone often farm out the day-to-day management of the rental properties to third-party companies, those intermediaries are often also based in faraway states.... In that worst-case scenario for renters, local and attentive property managers and building supers will get replaced with “Wall Street-based absentee slumlords,”...[.].
The problem with these corporate behemoths as landlords goes well beyond their indifference to your clogged toilet. As
Think Progress notes, they wield an inordinate amount of power over local communities, and they use their power to hold those communities hostage:
The rising influence of financial titans turned local landlords could threaten all sorts of public services. In the case of Huber Heights, OH, the hedge fund Magnetar Capital has become the largest landlord in the whole town and is using that influence to try to extract lower property tax charges from the town — a change that would undermine funding for schools and other public services for locals, but boost the bottom line of the Illinois-based financial giant.
This is just another ripple effect of the financial meltdown benefitting the same people who inflicted it on us all. Because, of course, their interest in real estate extends well beyond your piddling rental or mortgage payments:
The real money for the firm is in turning the rent payments it will receive from those 40,000 units into financial products called securities that it can sell to other investors. The practice could prove to be a broadly beneficial way to allocate scarce housing resources — or it could mirror the casino culture that turned the subprime bubble into an economy-wrecking conflagration.
We don't need to "speculate" to know how this movie ends:
Rep. Mark Takano (D-CA) thinks Congress has a responsibility to hold hearings and monitor the very new and potentially risky practices of this class of investor-landlords.
“Proper oversight of new financial innovations is key to ensuring we don’t go down the same road of the unchecked sub-prime mortgage backed security, and create an unsustainable bubble that will wreak havoc when it bursts,” Takano wrote Thursday in a letter to House Financial Services Committee (HFSC) Chairman Jeb Hensarling (R-TX) and Ranking Member Maxine Waters (D-CA).
Beyond the fact that these are the same types of real estate investments that received AAA ratings immediately prior to the Financial Meltdown, the same types of entities--pension funds, endowments and other institutions dependent upon safe, solid returns--are at risk when these types of investments go "on the market." The article linked above quotes Congressman Takano and points out that rental properties are becoming unsustainable due to rent increases in many cities. One quarter of all households that rent are paying that rent with more than one-half of their income.
And why are rents rising?
Rents are rising in part because the years-long foreclosure crisis has meant that there are far more people in need of rental housing after having lost their homes. Thanks to that same foreclosure wave, hedge funds and private equity firms have been able to buy up 200,000 family homes at fire-sale prices...
There's a phrase for that. It's called a "vicious circle."