I cherry-picked the cold numerical facts. Go to the article to read the heartstring-tugging anecdotes of the small landlords. Will we miss them when they are all gone, the "mom-and-pop landlords"? Apparently, we are deeply into a process of transferring their property to big investors.
This article, for all its empathetic anecdotage, is shouting the message: Cash out now. "Redfin senior economist Sheharyar Bokhari said small landlords who are struggling to keep up should at least be able to find buyers for their properties." How much can you get for your property when you've got nonpaying tenants and an eviction moratorium? You're the desperate character they call the "motivated seller."
ADDED: Near the end of the article there's a paraphrased quote from a small landlord, the owner of 6 rental homes in Kansas City: "friends and acquaintances in the industry have decided to sell and that foreign investors are snapping up homes." I was surprised to see the word "foreign," especially outside of quote marks. It has a xenophobic vibe that I expect The Washington Post to eschew.
I have to guess that the landlord did not use the word, but that it was wanted to convey a warning that the author of the article didn't want to take responsibility for. The author is Jonathan O'Connell, "a reporter focused on business investigations and corporate accountability. He has covered economic development, commercial real estate and President Donald Trump's business." Elsewhere in the article, the investors are called "large, Wall Street-backed investors," "institutional investors," "Wall Street investors," and just "investors."
To what extent are these foreign investors? Is this some bugaboo of a "mom" landlord in Kansas City or is there a powerful dynamic, assisted by the federal government, in which vast amounts of American real estate are coming into the control of non-Americans? Can we step back from the sentimentalism about small businesspeople and get some facts?
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38 comments:
"'It’s unlikely that a lot of them are underwater, because the values have been rising"
This is stupid. Those quotes are simply stupidity. Underwater on an investment can mean your asset is worth less than the debt you owe on it, it can also mean you've paid more than the total cost you've incurred on an investment. So, for example, if you own a $500k property and your mortgage's principal is $400k, Redfin may say look you aren't underwater!
Except you put $100k down and have been making payments for 5 years and only getting rent payments for 3 years, on top of taxes, insurance, and maintenance you've been paying. In which case your investment has sucked.
This whole eviction moratorium, not combined with a grace period for non-payment of mortgages nor tax relief, smells to me. I wonder if it's actually backdoor deals to try to move private property into the hands of investment groups at favorable terms.
On a pedantic side note (though sort-of related if irony counts), this is a pet peeve of mine: "house" and "home" are not synonyms. Real estate agents sell houses. The people who buy them make them homes.
It's bad enough to watch real estate agents blur the terms for their own marketing purposes, it's sloppy and unprofessional for writers to do it. And it's ironic to see this particular bit of carelessness in an article supposedly bemoaning the corporatization of small property investment trends.
This sounds like unintended consequences. Laws to protect tenants add financial burdens on landlords (e.g., less increases in rents, legal fees in evictions, etc.). Big companies would have deeper pockets and so can withstand such burdens. Hence transfer to big companies.
Homeowners, IMHO, would be foolish to consider renting out part of their larger home to renters after the children have moved on. Hence the apparent message, ‘Cash out now’, is well-taken.
@tim
I suspect that the reporter used "homes" because it can include apartments, though I know in New York City, it is (or at least once was) idiomatic to refer to your apartment as your "house."
By the way, "house" is part of my last name, so I'm a little annoyed by the notion that it's so cold it needs to be replaced by "home." An interesting thing about "home" that's not true of house is that it works as an adverb — "go home," "hit home," "leave home."
I looked up "home" in the OED, and the adverbial usage goes back to Old English.
I happened to notice while I was there that the use of "home" to mean "house" — a building that is a personal residence — also goes back to Old English.
I agree with Tim that it sounds like the real estate agents think there's something wrong with the word "house," but the words can be used as synonyms and it's been going on since Old English.
I always thought of a house as a structure and a home as a social construct much like the difference between sex and gender.
It's almost as if the squeeze on mom-and-pop landlords is deliberate and highly coordinated.
Regarding foreign investors: Chinese investors have been a force in a lot of West Coast cities for the past twenty years or so. Some of the major East Coast cities as well, I think. Basically they buy up property in the US and Canada because a) they want to get their money out of China, b) owning property is a requirement for marriage, c) Chinese real estate is a giant scam, and d) many of them send their kids to US and Canadian universities, so they'll buy a house or condo near the campus and let their kid live there.
Ann Althouse said...I happened to notice while I was there that the use of "home" to mean "house" — a building that is a personal residence — also goes back to Old English.
I don't have an OED subscription, so I can't read the full entry, but saying that "home" can be used to include the building that is a personal residence does not mean that it is interchangeable with "house." The house is the building itself, home is the house and also the warmth and welcome of the lives that are lived there. Which is why real estate agents try to swap out home for house--they want to create the impression that they sell more than just buildings.
The attraction of individual houses to investors is something of a repeat of the CMOs that got nailed so badly in the 2007-09 market meltdown. Those collateralized mortgage obligations were a vehicle to securitize individual properties and enabled Wall Street to have more inventory to sell. The drive for that inventory influenced the liar's loans, inflated investment-grade ratings, and all the other peak-of-cycle phenomena that went along with it. And only emerged fully visible and miserable when the trend changed.
Same today, only the investment pressure for houses comes directly from the Federal Reserve's policies. To control interest rates via quantitative easing, the Fed has been buying huge amounts of the Treasury's issuance, along with mortgages and other bond-like securities. That has left much less supply available to the private sector.
Individual houses offer both yield and appreciation potential, so they are "better" than mere mortgages alone for Wall Street's purposes. Some want the yield, some want the appreciation, it's a more appealing purchase.
Yes, surely some of those investors are foreign. I don't get the feeling that foreigners dominate the buying -- but if they do, remember the mad Japanese buyng of U.S. property in the late '80s when their own stock market was climbing so steeply. It didn't end well for them.
The bigger flaw in this is the familiar problem of absentee ownership. While Wall Street swaps paper, who will care about the particular community in which that property is located, much less its specific neighborhood?
The market has ways of sorting this out, though.
They want massive corporate control of the rental markets because a few institutional investors serving as landlords to hundreds of thousands, if not millions, are easier to buy out and control.
Once they own enough of the rental market, single-family homes will be phased out. Instead, we'll all be moved into habitation pods stacked forty stories high, eating our bug burgers and drinking soy milk.
I really feel for young couples trying to buy a first home only to compete with institutional investors holding all that cheap money from the Fed. Mix in the destruction of small retail biz over the past 18 months. The middle.class.is really taking a hit.
“A house is not a home.”
More Burt Bacharach and Hal David than OED
One word. Blackstone. https://www.corpwatch.org/article/blackstone-group-buys-houses-bulk-profit-mortgage-crisis
This is not sentimentality and there are a lot of facts surrounding what's going on with real estate. That WaPo is on the story should let you know that it's been in play for years now. They are never first to the story (not since the 70s).
First- lose the word 'xenophobia' when talking about foreign investments. A thing is what it is. Fifteen or so years ago, massive wealth from Asia, mostly from China, started buying up properties in Vancouver, BC.What started small became a gusher of investments. Chinese wealth needed a place to invest freely (not in their own country) and Canada was a prime target. Vancouver was beautiful and a direct flight. Within a few years, no one living in Vancouver could afford to buy a property there. The values were literally bid up. Governmental obstacles were put in place, albeit too late to save that market, so Chinese eyes turned to Toronto, where the game repeated. Values in Toronto skyrocketed to ridiculous numbers and remain there today. Canada has put in place restrictions on foreign real estate investment. Eyes then turned to the US markets, which always had investments, but now much heavier in Seattle, San Francisco, and over on the east coast as well.
Second- the US government is killing the middle class. There is no doubt about that. It is the American dream to work your butt off, save a little at a time, then buy a property. For an individual to buy a rental property, an apartment, or multiple apartments, takes an enormous amount of time, work, stress, risk, money. They have been purposefully and by design, killed off by the Democrats and Biden administration. On the other hand, investment firms such as BlackRock are buying up record numbers of homes- entire neighborhoods when they can, at any price. Bidding up the markets and taking properties that small landlords are no longer allowed to operate as their private property.
So a combination of heavy BIG money coming in from Asia, mostly China, driving up housing prices above normal market pressures, coupled with small property owners being restricted on evicting non-paying tenants while still having to pay their mortgages to corporate banks (who, by the way, donate heavily to Democrats), coupled with major investment firms turning their attentions to the residential real estate market, jumping in to take over properties who's owners have either lost their jobs during the shut down, or cannot evict tenants due to a governmental 'taking'. Top that off with the Biden administration getting free rein to bury the middle class in every conceivable way, from eviction moratoriums, to massive taxes, elimination of energy production, and rising inflation. Many people who own simply can no longer afford to own. But guess who can?
Look at the top donors to the Democratic Party and I suspect you'll see some of the top investors in today's residential real estate market.
For me the issue is using fractional terms in the descriptions.
Why would you choose fractions 2/3 and 2/5 instead of 66% and 40%?
And then spell the numbers “two thirds, two fifths”?
Likely because the real numbers aren’t actually that precise. The actual numbers are probably less than 66%, and more than 40%,
But rounding up, and down to coarse fractions leaves an overstated impression in the readers minds, obviously to increase the level of concern.
My comment refers to the Wall Street phenomenon with buying individual houses, not the small apartment houses of your topic. My mistake, having been blocked from reading the article. But I think the same or similar dynamic is at work with individual houses, which is a new development with this particular cycle, as with yield-craving purchases of small apartment buildings. If in a city, the eventual upside to the apartments could be that much greater if there is much chance that a building gets razed and a bigger condo built.
Oh, so the small owners can at least sell their properties? And put their money where? In bonds, where the return is virtually zero, and the government will feel free to wipe out your investment if there's another downturn? Or the stock market, where you are forced to risk your life savings on the vagaries of waves you know nothing about, and likely with timelines shorter than the recommended 5-15 years for equity investments?
For many, many small landlords these properties are their income stream. It's not 100% certain but it's pretty good, and for someone who is handy and doesn't mind doing repairs it's a good way to live.
Lately I think the "world" or something out there is trying to make us all into wage slaves. That sounds dramatic but isn't this?
“An interesting thing about "home" that's not true of house is that it works as an adverb — "go home," "hit home," "leave home."“
Open house. House bound. Home less. Home free.
Doogie Houser. Homer Simpson.
Little Home On The Prairie.
Oh, give me a house where the buffalo…
Well, Frankie Lee, he panicked
He dropped ev’rything and ran
Until he came up to the spot
Where Judas Priest did stand
“What kind of house is this,” he said
“Where I have come to roam?”
“It’s not a house,” said Judas Priest
“It’s not a house . . . it’s a home”
https://www.bobdylan.com/songs/ballad-frankie-lee-and-judas-priest/
The transfer of property and vast wealth from individuals to corporations is a feature and not a bug.
"This whole eviction moratorium, not combined with a grace period for non-payment of mortgages nor tax relief, smells to me. I wonder if it's actually backdoor deals to try to move private property into the hands of investment groups at favorable terms."
Winner, winner, chicken dinner...
Do Democrats care? nope. They don't care about nothin'. Just destroy those damn Republicans and they're OK with anything. Like Obama, Biden is in the pocket of big business. The Democrats are now the "Billonairs Club - Mike Bloomberg edition".
It should be obvious that having local businesses and property owned by local bussinessmen is better for your community. But of course, getting the average person to understand that is almost impossible. "Free market rules bro!" even when we average people get nothing out of it.
I have to agree with Temujin about real estate pricing trends killing the middle class. I live in a Los Angeles suburb in what I tend to describe as a "$35,000 tract house". At least that's what I would have paid for it in 1967 as a new built house in a San Diego suburb.
I moved to Los Angeles in 1974--and bought a new built house. I paid $75,000 for it--but it was no better or bigger than those I'd seen in 1967. With inflation that $75,000 is now roughly equal to $500,000 today. But the market value of the house is now close to three times that sum.
You'd need an income of roughly half a million dollars to buy a house in my neighborhood today. The driveways are awash with Rolls Royce SUVs, Bentleys, Maseratis etc.
Well that's who can buy in my slightly upper middle class neighborhood, Since most people here own several cars, it's not uncommon to see a million bucks worth of autos in a driveway.
I don't see how the old middle class can survive. They sure can't buy a house in a decent neighborhood in California. So they're headed out to Texas or other parts unknown.
What Temujin said.
I have worked with companies that help foreign nationals buy real estate in the U.S. and Canada - clients of my law firm. Mainly formed to help Chinese nationals buy up real estate in Canada and the U.S., specifically the large cities on the west coast. I've spent days reading their promotional materials, and writing about their "mission" while drafting L-1A (multinational manager) petitions. Thus to me the foreign buyer is pretty real. Citizens of China are keen to park their money in the more financially stable U.S. FWIW the properties purchased were primarily luxury high-rises in Vancouver, Canada and Los Angeles. Yay? Thus the rent is being jacked up for wealthy tenants.
---- I really feel for young couples trying to buy a first home only to compete with institutional investors holding all that cheap money from the Fed. Mix in the destruction of small retail biz over the past 18 months. The middle.class.is really taking a hit. --Michael
Yes, Michael. But but but the Fed is on the income inequality mission too! Soon all will be well. If only they could just buy everything.
It's almost as if we're witnessing a deliberate, highly coordinated effort by the US Government, and by the "world" or something out there, to kill the middle class and make us all into wage slaves.
On Statista, you’ll see that only Covid has temporarily slowed the sharp rise in mass purchasing of American real estate by Chinese companies and individuals. A small dip in 2016 is due to redefining what is being counted. There are countless articles about this phenomenon by people who analyze real estate, so why weren’t any quoted?
This is a real and growing problem for renters and the middle and working classes. Rents are out of reach for young families in upstate Georgia subdivisions, even the crappier ones. Forget buying a starter house. And it’s not just mass immigration causing it, though that definitely exacerbates the problem. Foreign investors and Blackstone and Wall Street are driving previously upwardly mobile working class young marrieds around here into mobile homes, literally. I heard a lot of despair about this when I worked in a grocery store. Both parents working, roots in the area, and person after person couldn’t afford anywhere to raise their kids.
This wasn’t merely gentrification: it was a giant sucking sound vacuuming up even the sorriest properties and sitting on them and tripling rents.
Big conglomerates, American and foreign (and often both) use local real estate agencies as fronts. The tiny, expensive, crappy rental we had until our house elsewhere sold was managed by a local real estate company for a holding company in Texas which I traced back to its owners in China. When their wonky payment system took our rent out twice in one day, and I cancelled the redundant payment (the first went through, and before the due date), they served us eviction papers delivered by armed deputies the next morning. Our rent wasn’t overdue. They didn’t apologize and would not pay our bank fees for the cancellation. The same thing happened the next month. Again, no apology, and we had to use their payment system. I pity people who lack our access to lawyers and the ability to ensure that the fraudulent eviction filings didn’t attach to our credit report. How many people even know (or have a mouth like mine) to wade through that? I had to force the real estate company to contact both the sheriff and the credit agencies. Later, I figured it out: they had sold their souls to the chi-coms. Souls are real estate one should hang onto. If I ever move again, I will seek out local, human buyers.
What is it with the Democrats? They are destroying the home rental market and that will result in rentals becoming condos and those who can't afford to buy be forced into public housing. If Wall Street thinks they have a pall in the Democrats, they are nuts. Corporate rentals will face the same cold winds the moms and pops are facing. The AOC wing will guarantee that. Give it ten years and it will be ownership and section eight housing.
The National Association of Realtors puts out a report on foreign buyers of residential property in the US. The past few years (page 13) show Chinese investment slowing substantially:
4/2016-3/2017: $31.7B
4/2017-3/2018: $30.4B
4/2018-3/2019: $13.4B
4/2019-3/2020: $11.5B
4/2020-3/2021: $4.5B
Foreign purchases of US residential property have also dropped from $153 billion in the year ending March 2017 to $54.4 billion, for the year ending March 2021. I imagine that travel restrictions due to coronavirus must have exacerbated the pre-existing downward trend in foreign investment in US real estate. Some purchasers will buy sight unseen, but not all. And many foreign buyers buy because they (or their children) are here for work or school.
Just guessing based on the numbers quoted in the article, it looks like maybe in 2017 or 2018, foreign buyers had a greater direct impact on the residential market than institutional investors (I say "direct" because obviously Fannie Mae, mortgage backed securities, and all that have a huge indirect impact by making real estate loans more available enabling purchasers to bid up prices). But in the current period, institutions are probably a lot more significant.
Steven Greenhut in Reason ...
Antiquated Zoning Laws Are Worsening the Housing Crisis
Ending single-family zoning doesn't ban single-family homes from neighborhoods. It merely allows more freedom for people to build what they want.
"California's median home prices have just topped $800,000, which is astounding when one considers that this is the statewide median, and includes lower-cost markets such as Bakersfield and Modesto. Unlike markets for consumer goods, government permitting and land-use regulations depress housing supply. That has led in part to the current price run up.
In 2015, the Legislative Analyst's Office reported that California's housing prices are 2.5 times the national average—and that we need 100,000 more units a year to keep pace. The state's slow-growth rules and endless mandates for solar energy and open space also drive up prices. That's why I beat the same old drum: California needs to let builders construct more housing of all types."
https://reason.com/2021/07/09/antiquated-zoning-laws-are-worsening-the-housing-crisis/
All you have to notice is this- the moratorium on evictions didn't apply to enforcement of tax liens.
Real estate is the only legitimate tax sheltered investment for the middle class. The Democrats apparently want to destroy the middle class to move to neo-feudal arrangements. It is my hope that the excodus from neo-feudal states like NY and California to states where middle class life is possible will stop them from taking over the whole country.
Why did Wall Street support the left?
"President Joe Biden’s $2.3 infrastructure bill contains incentives for cities to rezone areas that are currently exclusively established for single-dwelling homes so that they can accommodate multi-dwelling low-income apartments, a move critics say will destroy suburban life."
Put those single family rentals into foreclosure & let Wall St. build govt. approved multi-family projects. what could go wrong?
Tim Maguire: if you go to OED.com, or type in “free Oxford English Dictionary” there are very fun resources and advice from them on how to access the OED for free and other features. You can find practically everything else on Project Gutenberg for free, unless it’s still under copyright.
Chinese wealth needed a place to invest freely (not in their own country)
This should be a cautionary tale for Americans who invest in China.
The New Feudalism.
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