Democrats eye new legislation to rein in Wall Street landlords

Originally published in Vox on December 2, 2022.
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Institutional housing investors — largely, the commercial banks, private equity, and other financial entitles that flip homes or rent them out — have been the subject of conflicting media messages.

On the one hand, we’re told investors are buying up more housing than ever. In 2021, they bought nearly one in seven homes sold in the 40 largest US metropolitan areas, the most in at least two decades, according to Redfin data analyzed by the Washington Post. In the first quarter of 2022, investors comprised between one-quarter and one-third of home sales in Atlanta, Jacksonville, Charlotte, Phoenix, and Miami. The US House Financial Services Committee reported in June that corporate ownership of single-family rental homes has grown 3 percent annually since 2010, “with the third quarter of 2021 posting the fastest year over year increase in 16 years.”

These trends are worrying, researchers and advocates stress, because there’s evidence that corporate landlords, under pressure to deliver big profits to their shareholders, are more likely to evict their tenants, raise rents more aggressively, and shirk responsibility for basic maintenance and repairs. There’s also evidence that some investors have been targeting homes in Black neighborhoods at disproportionate rates, accelerating gentrification and putting homeownership for some families further out of reach.

On the other hand, housing owned by large corporate investors makes up a much smaller percentage of the nation’s overall housing stock than is often suggested by headlines. Institutional investors, referring to entities that purchase 100 or more properties, accounted for under 3 percent of home sales in 2021 and 2022, according to Freddie Mac. So-called “mom-and-pop” investors, who own fewer properties, are growing at faster rates, and according to the National Rental Home Council, only 1.16 percent of single-family rental homes were owned by rental companies. Americans for Financial Reform estimated that as of June 2022, private equity firms owned about 3.6 percent of apartments and 1.6 percent of rental homes.

Defenders of the sector point to research showing that most people moving into single-family rentals are poorer, younger, have worse credit, have larger families, and are more likely to be single parents than their home-owning counterparts. One study published last year estimated that 85 percent of single-family rental residents would not qualify for a mortgage. Taking away these rental options, advocates warn, would just take away more spacious living arrangements for younger families who can’t yet afford to own, or might not want to even if they could.

Others say the focus on Wall Street investors is largely a scapegoat to avoid wrestling with the real culprit of the housing crisis: the dearth of available units. Sam Khater, the chief economist of Freddie Mac, cited labor shortages, land use regulations, zoning restrictions, political opposition to new housing, lack of developers and lack of land as root causes of the housing shortage. And economic research published this summer found that remote work has also increased US aggregate home prices by 15.1 percent since late 2019.

Still, with damning press and congressional investigations into corporate housing abuses, political pressure has mounted on lawmakers to step in. In August, senators heard testimony from people like Laura Brunner, the president and CEO of the Port of Greater Cincinnati Development Authority. Brunner detailed how institutional investors have upended their local housing market, and dramatically hiked rents in the process. “We’ve been told by institutional investors that they only own about 1 percent of single-family homes; however … this could mean 50 percent of the houses on a single street,” she testified. “When the geographical impact is so concentrated, it has a game-changing effect on what it means to live in that neighborhood.”

In late October, three Democratic House members from California — Reps. Ro Khanna, Katie Porter, and Mark Takano — introduced a new bill, the Stop Wall Street Landlords Act, to address these growing concerns. Senators have also been getting involved, holding listening sessions with renters and housing policy experts. A spokesperson for Sen. Sherrod Brown told me that Brown is focused on “predatory investors and landlords — particularly deep-pocketed investors taking advantage of new technologies” that price out families from homes and leave tenants with unsafe living conditions. Brown is currently working on “legislative steps to protect families and address these predatory practices,” the spokesperson said.

Khanna said he doesn’t see his new bill as a comprehensive housing solution, and stresses that lawmakers need to stay focused on fighting barriers to new housing construction, increasing housing supply, and expanding down-payment assistance. “But we don’t need to be subsidizing institutional investors to go buy up housing in working-class neighborhoods and holding them for appreciation and turning them into Airbnbs,” he told me. “You could make an argument that it was necessary to subsidize Wall Street investors after the 2008 financial crisis when the market collapsed, but that certainly now has run its course.”

The Stop Wall Street Landlords Act, explained

The stated goal of the new House bill is to deter future institutional investments into single-family homes. It would try to do this in a few ways, including by barring corporate investors from claiming certain tax breaks like the mortgage interest deduction, and imposing a transfer tax on the sale value of new single-family home purchases.

The legislation also would bar the government-sponsored mortgage companies — Fannie Mae, Freddie Mac, and Ginnie Mae — from assisting certain large investors in financing, and would establish a new tax credit to help affordable housing developers build and rehab homes in low-income areas.

Groups representing institutional investors, unsurprisingly, have come out strongly against the bill. A spokesperson for the American Investment Council, which represents private equity companies, told Vox that “this politically motivated legislation completely misses the mark and won’t help address the real challenges in today’s housing market.”

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David Howard, executive director of the National Rental Home Council, told the Mercury News he believes the bill “will only reduce the availability of single-family rental housing while making it more expensive — ultimately hurting the very people for whom access to affordably priced rental housing is so essential.”

Kristin Siglin, vice president at the National Community Stabilization Trust, a nonprofit that transfers foreclosed and abandoned properties to local housing groups, praised the bill’s inclusion of the neighborhood homes tax credit, which was also included in the Build Back Better bill the House approved last year.

Siglin told me the coalition she leads to promote the tax credit was “really pleased” to see the measure included, and commended the Stop Wall Street Landlords Act for not only including sticks in the form of ending tax preferences for corporate investors, but also carrots, like the tax credit, to increase the supply of homes to sell to owner-occupants. Right now, large corporate investors are often the only entities available with the financing capabilities to make repairs on homes. The neighborhood homes tax credit, Siglin says, can help to fill this gap, and keep more properties out of Wall Street hands.

Khanna’s office said they worked with experts including the Urban Institute to develop their bill. The Urban Institute’s government affairs manager, Victoria Van de Vate, told me she hasn’t read the Stop Wall Street Landlords Act and said her think tank does not suggest bill language or take official positions on legislation. “A team of housing researchers and I met earlier [in November] with Rep. Khanna and his team to discuss policy alternatives to increase rates of black homeownership and the role of institutional investors in the housing market,” she said. “It was a good conversation, and we always welcome the opportunity to share our research, answer questions, and provide evidence-based recommendations about policy.”

Laurie Goodman, the founder of the Housing Finance Policy Center at the Urban Institute, told me separately that she sees Khanna’s legislation as a very “punitive bill” that would deter institutional investors from buying properties in a way that would be unhelpful. The single-family rental industry does a lot of good things, she added, “all of which are ignored by the critics.” Goodman was not familiar with the neighborhood homes tax credit but argued that institutional investors play an important role in financing repairs that prospective homeowners can’t afford.

Dan Immergluck, a professor of urban studies at Georgia State University who has researched the history of institutional investors on housing markets, told me that while he hasn’t had time to closely read the bill, he does not support allowing Fannie Mae and Freddie Mac to help finance large-scale single-family rental operations unless there were “serious strings” attached, like affordability requirements. Immergluck said he’s less convinced simply making it more expensive for single-family rental operators to do business through measures like excise taxes will be effective, “because in places where they already have market power, they could pass those costs onto tenants.”

Where the corporate housing sector is likely going

What about inflation and the much-discussed housing construction slowdown sparked by rising interest rates? Increased building costs have already led to a slowdown in investor homebuying — a decline of 30 percent in the third quarter of 2022, the Wall Street Journal recently reported. Redfin also just closed its own home-flipping business, following Opendoor Technologies, another online house flipper, which just posted record losses.

Khanna told me he thinks his bill would help stabilize some of the rising rents by decreasing demand from institutional investors, which still accounted for 17.5 percent of all home sales in the third quarter of 2022. Even if institutional investors only buy up a small percentage of total housing, their presence in the bidding wars can still lead to higher costs for all buyers. And even though investor sales growth has slowed, experts expect their share of purchases to rise again soon, as builders with unsold homes look to sell to rental landlords. Plus a widely expected recession could raise unemployment and make it even harder for traditional buyers to compete with corporate bidders.

While investment firms began purchasing foreclosed homes after the housing crash, investors more recently have been pouring billions of dollars into new build-to-rent communities in more than 25 states. The National Association of Home Builders reported 13,000 such homes were started in the first quarter of 2022, up 63 percent from a year before. In November the CEO of Tricon Residential, a Canadian real estate company, said on an earnings call Tricon has nearly $3 billion it plans to use to buy and build new homes.

The Stop Wall Street Landlords Act will not tackle the housing shortage, Khanna acknowledged, but maintained it’s a necessary part of the legislative puzzle. “We need to massively increase housing supply, we need to figure out creative programs for first-time homeowners, and we need my new bill, which will stop the financialization of housing.”

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But Where Can We Shelter?

Originally published in The Nation on June 16, 2020.
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After the fifth debate of the 2020 Democratic presidential primaries, The Washington Post published one of its infamous fact-checks highlighting those moments when, in the paper’s estimation, someone got too loose with the truth. Among the 10 claims flagged by the Post was Vermont Senator Bernie Sanders’s remark that the United States has “500,000 people sleeping out on the street.” This statement was “exaggerated,” the Post admonished, because while it’s true that in 2018 the Department of Housing and Urban Development (HUD) estimated that there were 553,000 people experiencing homelessness in America, not all of them were technically on the streets; some 360,000 were in shelters or transitional housing.

Putting aside that many experts believe HUD grossly undercounts the homeless, the Post’s finger-wagging exemplified some of the peak absurdities of America’s housing crisis. The United States is the richest country in the world, but millions of its people struggle to afford housing or find it at all. Instead of ensuring that there are enough units in areas where people want to live, we’ve dawdled for decades and made excuses for why things can’t be different—or even claimed they really aren’t so bad.

Golden Gates, a new book on the housing crisis by New York Times reporter Conor Dougherty, dives straight into these problems, skillfully exploring everything from the yes in my backyard (YIMBY) movement, which promotes more housing development, to anti-gentrification activism, the normalization of homelessness, and the factors that have made it so prohibitively expensive to build anything new. It’s the latest addition to a slate of books on housing that have come out over the past few years, including Richard Rothstein’s The Color of Law, Matthew Desmond’s Evicted, Ben Austen’s High-Risers, Matthew L. Schuerman’s Newcomers, and P.E Moskowitz’s How to Kill a City. These books have explored various aspects of housing discrimination, especially the burdens borne by the nation’s poor and people of color, but Dougherty’s is among the first to look squarely at the politics of trying to respond to this disaster. By examining the inertia and ineffectiveness of political leaders who largely agree on what needs to be done, he makes a sobering case for how and why our politics have failed. While not so much a book of specific policy prescriptions, Golden Gates helps clarify why we have a housing crisis in the first place.

As suggested by the title, Golden Gates focuses on California, especially on San Francisco, where the housing troubles are particularly extreme. California has the distinction of having one of the highest housing costs in the nation and some of the highest-paying jobs. It also has, using HUD’s metric, more than 150,000 people experiencing homelessness—far more than any other state in the country. But California’s problems, Dougherty insists, are not anomalous: They are merely “an exaggerated example of the geographic inequalities” that we see in almost every American city as urban centers grapple with the increasing concentration of economic opportunity and the rising cost of living near it. As higher-paying industries like tech and consulting consolidate in and around a few dense areas and as lower-paying retail and health care jobs replace those in manufacturing, the competition to find housing near the good-paying jobs has grown more acute.

To tell this story of housing scarcity and political inaction, Dougherty focuses on a diverse set of people, including Jesshill Love, a longtime Bay Area landlord wrestling with how to raise rents, and Rafael Avendaño, the director of a youth center who tries to teach teenagers in Redwood City how to fight their evictions. We hear from housing developers like Dennis O’Brien and Rick Holliday about the byzantine barriers they face to build more homes and from state Senator Scott Wiener, who has struggled to get his housing reform bills approved. And we hear quite a bit from leaders in the YIMBY movement, like the teacher turned housing activist Sonja Trauss, who moved to the Bay Area in 2011. Since then, the Bay Area has created roughly eight new jobs for every new housing unit, far beyond the 1.5 jobs per new unit recommended by planners. Trauss and her fellow YIMBYs want more homes built, arguing that the shortage in metro areas with highly sought-after jobs has led to soaring rents and home prices and justified fears of displacement.

One of the most sobering aspects of Dougherty’s narrative comes from his historical findings. Many people are familiar with the current affordability crisis in San Francisco, which is often blamed on greedy tech CEOs and venture capitalists. But fewer are aware of its deeper roots. Digging through the archives, Dougherty shows just how long California leaders have been aware of the housing crisis that the state faced if it didn’t alter course. “Changing San Francisco Is Foreseen as a Haven for Wealthy and Childless,” read one New York Times headline in 1981. Two years earlier, an MIT urban planning professor blasted the Bay Area for its “arrogant” and “self-serving” land-use policies and traced how developers were routinely stymied by environmentalists and homeowners opposed to new people moving in. Delivering a 1981 commencement speech at UC Berkeley, the university’s top economics student warned that the Bay Area’s housing shortage would result in sharply rising prices and that homeowners were likely to keep fighting any efforts to address that.

The commencement speaker was right, yet too little was done in the years that followed. This lack of reform around land use was largely rooted in the failure of leaders to take on entrenched interests who profited from the status quo—from the investors, developers, and building trades to the homeowners who were fortunate enough to move to a desirable area first.

Today politicians are trying to tackle these structural problems more directly. Policy analysts say California needs to build 3.5 million homes to get serious about solving its housing crisis, and in 2017, California Governor Gavin Newsom committed to reaching this goal by 2025. But this is a tremendous task that would necessitate building roughly 500,000 units a year, when over the past decade, on average, fewer than 80,000 homes were built in the state annually. And there are, as Dougherty observes, considerable impediments that stand in the way, including soaring costs for construction and land. The cost of building a 100-unit affordable housing project in California had increased from $265,000 per unit in 2000 to almost $425,000 by 2016. And that’s an average. In cities like San Francisco, it can cost upward of $850,000 to build a single subsidized unit. When California’s legislature passed a $4 billion bond to build affordable housing in 2017, it was hailed as a serious step forward, one that would amount to a nearly $12 billion effort when paired with private money. But $12 billion divided by $425,000 equals just 28,235 units, or 0.8 percent of the 3.5 million goal. As Dougherty writes, “This sort of math could make a joke of any new funding effort.”

Voters across California have been more supportive of new funding packages for affordable housing over the past few years, but the quiet dread among advocates is that once the public realizes how little effect each influx of money has on the crisis, their appetite for new taxes might wane. “Behind each new affordable housing bond and the additional billions for homeless services was a public who thought they were being generous, when really the new taxes were nothing in comparison to a problem that was getting worse faster than cities could deploy the money,” Dougherty writes.

While the political leaders in Sacramento and on city councils continue to squabble, renters are doing what they can to organize, and Dougherty gives voice to their experiences too. In particular, we hear from teenager Stephanie Gutierrez, who studied every Tuesday night with other community members how to protest gentrification and eviction. One day, Gutierrez returned home to discover that her family’s rent would be jumping by 45 percent.

Gutierrez and the activists she worked with did their best to raise hell. “No hay peor lucha que la que no se hace,” another tenant insisted—there is no worse fight than the one that isn’t fought. But Dougherty doesn’t sugarcoat the hurdles that renters face. “Protests could make [housing] flips more expensive, but not nearly by enough,” he writes. Despite the occasional bad headlines, developers saw easy opportunities to make more money, and landlords were well within their legal rights to raise rents.

Dougherty also follows the YIMBY activists as they mobilize for new subsidized and market-rate housing. Their build-everything philosophy often pits them against anti-gentrification groups, which view new for-profit development as housing policy moving in the wrong direction. But activists like Trauss insist that more housing will help reduce prices for everyone by relieving pressure on strained markets. Dougherty is sympathetic to this argument, but he also notes some of the real limits faced by these mostly white, highly educated activists as they struggle to build a multiracial and cross-class movement.

Perhaps one reason Dougherty is more sympathetic to the YIMBY movement is that unlike many others, it has been more willing to confront the reality that you can’t stop people from moving to dense, crowded cities, no matter how much you wish they’d stay away. As Wiener, who is aligned with the YIMBYs, once vented, “There is a strain of self-described progressive politics in San Francisco that says: ‘Lock down the city’…. Don’t build more housing—just lock it down, and maybe if we dig a moat around the city and put crocodiles in it we can just stop people from coming.”

Despite finding some hope in local activism, Dougherty doesn’t end his book on a particularly optimistic note. The rising costs to build, the increasing polarization, and the failure to take on entrenched special interests, he suggests, could leave California in much the same place it has long been. And yet he writes that there is growing momentum on the legislative level, not just in California but across the country. Since 2017, rent-control bills and ballot initiatives have cropped up in roughly a dozen states, and in February 2019, Oregon became the first to pass rent control statewide. In June 2019, New York legislators beefed up rent control for nearly 1 million apartments in New York City, and California approved statewide rent control a few months later. Meanwhile, the Minneapolis City Council voted to end single-family zoning, a measure intended to boost the housing supply, and Oregon shortly followed suit. In the DC area, where planners say at least 320,000 new units are needed in the next decade to accommodate demand and population growth, lawmakers are considering measures to expand rent control and reduce barriers to construction.

Yet a crucial question in Golden Gates remains unanswered: What can governments do to help those who need housing now without enacting policies that could make the situation worse in the long term, whether by exacerbating displacement and segregation or by contributing to an even more severe shortage down the road?

Some new housing ideas have emerged recently on the left, such as building more housing that would be kept off the market for speculation and profit entirely. The homes guarantee movement, launched in September 2019, seeks to do for housing what Medicare for All would do for health care. While some homes guarantee advocates object to the idea of expanding Section 8 vouchers because they’d like to reduce reliance on the private rental market, others maintain that these policies are not necessarily in conflict with each other. In fact, Sanders campaigned on both a homes guarantee and making Section 8 vouchers available to all who are eligible. “Mixed solutions can feel like a cop-out,” Dougherty writes, “especially in polarized times. And yet, over and over, in city after city, it’s always where people end up and what seems most likely to work.”

He has a point. To move forward, movements will have to find ways to break out of their particular communities and build strength across class lines. In other cases, activists and political leaders might need, as was the case with Medicare for All, to find new language to address existing policy demands. One think tank in Seattle tested YIMBY messaging and found that the word “homes” worked better than “development” and the phrase “walkable and convenient” was more appealing than “density.” In Minneapolis a YIMBY group has opted for the warmer name Neighbors for More Neighbors. These are all worthwhile steps, but the politics won’t be solved by friendlier rhetoric alone. To build more housing, we’ll need to build more power.