But at least Ron Moeller lives in the house he owns near Lead and cares enough about it to run for Legislature and fight for continued government subsidy of his flammable forest shack. The increase in investors scooping up residential properties and turning them into rentals can lock in poor community conditions:
There are bullet holes in all kinds of places in the North Minneapolis neighborhood where former city council member Don Samuels lives.
Across the street from his house is a car with oddly placed stickers on the back. He said the stickers are there to cover up the holes.
Down the block are two homes on opposite sides of the street, each with lots of bullet holes in their siding. Samuels said one of the homes belongs to a local landlord who, like many landlords here, doesn’t pay much attention to crimes committed at their properties. The other belongs to a homeowner with two kids who were caught in the crossfire between the renter across the street and a gunman in a car.
“Yeah, that’s what happens on our street here,” he said. “That’s what happens when you live in a heavy rental community where behaviors are not managed.”
The strategy of landlords here is to maximize profits by minimizing maintenance and renting to people who wouldn’t complain to authorities about substandard living conditions, according to Samuels. Sometimes those are people with eviction records who can’t find housing elsewhere, and sometimes they’re criminals [Tu-Uyen Tran, Kim Eng Ky, and Libby Starling, “Understanding the Rise of Investor-Owned Homes,” Federal Reserve Bank of Minneapolis, 2021.11.12].
…while locking out working homebuyers and even small-scale landlords:
Most of the growth in investor ownership in the metro area has been with very large investors, those owning 50 or more properties. In 2006, these investors owned less than 1 percent of all investment properties in the metro area. In 2021, they owned 11.6 percent, with high concentrations in North Minneapolis, central and eastern St. Paul, some nearby suburbs, and outer suburbs far from the urban core, such as Chanhassen and Lakeville. This increase comes primarily at the expense of small investors, those owning two to nine properties. They were and still are the most numerous class of investors, but their share of investor-owned properties owned has fallen from 87.1 percent in 2006 to 68.7 percent in 2021…. Medium to large investors have also increased their holdings but not as dramatically as very large investors [Tran, Ky, and Starling, 2021.11.12].
Regular homebuyers and moms and pops looking to supplement their income by acquiring one or two rental properties bought on bank financing have trouble competing with big investors who walk into real estate offices with great gobs of cash:
“Historically, the vast majority of these investors have been mom-and-pop landlords, but after the 2008 bust … we saw institutional investors and other funds enter this market,” said Karan Kaul, senior research associate for the Housing Finance Policy Center at the Urban Institute.
“If you’re a first-time homebuyer and you’re depending on a mortgage that takes two months to close and you’re competing against someone who’s making a cash offer, you’re at a disadvantage right off the bat,” Kaul said.
David M. Dworkin, president and CEO of the National Housing Conference, said that cash offers typically make up about 25 percent of the market but that over the past year, the proportion soared to nearly 1 in 3. “This is having its worst impact on first-time homebuyers, who generally are more dependent on mortgage financing and have limited budgets,” he said. “It’s hurting millennials. … It’s also hurting people of color who are trying to become homeowners.” [Martha C. White, “Who’s Outbidding You by Tens of Thousands of Dollars for That Home of Your Dreams? A Hedge Fund,” NBC News, 2021.07.21].
Kaul notes the same deeper market problem that this smart June 2021 Vox article by Jerusalem Demsas highlights: institutional investors, who still control only a small fraction of the housing market, are only capitalizing on the more fundamental problem of low housing supply. But Demsas recognizes that whatever other solutions we pursue to providing more affordable housing may be fouled if we don’t keep institutional investors’ share of the market small:
Institutional investors’ incentive to profit and return as much as possible to shareholders is a reason to cut as many corners as possible…. [E]ven if it might be easier to monitor larger entities, it’s not clear that anyone would actually do that. And in the absence of government watchdogs, tenants would face much larger asymmetries of power than they would with small landlords. An army of lawyers and bureaucracy, for instance, could make it more difficult for tenants who have complaints or are being serviced with unreasonable fees.
And if real estate prices continue to appreciate, that means the growing wealth will be concentrated in the hands of these corporations. If these homes were owner-occupied, they would be concentrated in the hands of homeowners. In a Washington Post op-ed last year, Sen. Elizabeth Warren and Carroll Fife, the director of a California-based housing nonprofit, argued that allowing another “private equity real estate grab… would again give Wall Street carte blanche to use a national crisis to enact a massive, generational transfer of wealth from vulnerable Americans to corporations.”
There is also the concern that since these single-family rentals are concentrated in certain markets, institutional investors could gain market power and raise rents as they face diminishing competition from other landlords [Jerusalem Demsas, “Wall Street Isn’t to Blame for the Chaotic Housing Market,” Vox, 2021.06.11].
Housing, like food and sex, gets worse when commoditized. Letting our corporate overlords extend their dominion to our living space as well as our working space means less liberty for all but the richest Americans. Maybe we can persuade candidate Moeller that he should include a cap on investor-owned housing in his campaign to protect South Dakota homeowners from corporate oligarchy.