I. A dozen Krispy Kreme donuts only cost $9 in 2015, but today those same donuts cost $20, per this post on X.
II. When I was a chubby Minnesota farm kid in the mid-1970s, I distinctly remember all of the anger towards “middlemen,” as THEY were the cause of that darn inflation!
We were so mad at greedy middlemen for raising our prices! And politicians loved it too because it took the blame away from them (the actual cause of the inflation, as is usually the case).
We, of course, didn’t understand that many of those evil middlemen were actually just distributors, filling gaps, bringing goods to underserved markets, and fostering more efficiency (and lower prices) in most cases.
III. There are thousands of home-sellers across the Southeast praying that institutional investors do not pull out of the market right now.
IV. Today, people are really mad at institutional investors for pushing up home prices because they own so much inventory and outbid poor first-time buyers so often. And politicians love it because it takes blame away from them – the actual cause of inflated home prices.
But, while there is no love lost between me and institutional investors, they are likely every bit as innocent as those hapless middlemen from the 1970s.
This excellent post on X explains why the anger towards institutional investors is misguided: No, BlackRock Is Not Buying Houses: The Real Drivers of America’s Housing Costs. WHILE I HIGHLY RECOMMEND READING THE ENTIRE ARTICLE, I will summarize the salient points.
Politicians and social media posts constantly imply that America’s largest investment funds like BlackRock, Vanguard, and State Street are gobbling up America’s single-family homes and crowding out first-time buyers! But those firms own no homes.
There is, however, a private equity firm called “Blackstone” that is buying up single homes, but they own less than 0.1% of all single-family homes (less than 1/10 of 1%) – so they not only can’t move the market, they can’t even nudge it.
Here are some numbers:
America has 90 million single-family homes – and 1/3 of them are rented.
But a full 87% of those rentals are owned by individuals.
Institutional investors only own 13% of those rentals – or less than 4% of all single-family homes. And even a 4% ownership stake is not enough to move a market.
Why Do Institutional Investors Get Blamed?
A. It is expedient for politicians to do so – whether it is true or not.
B. Housing prices have indeed skyrocketed – and consumers are upset and looking for someone to blame. But prices are high because of inflation and building restrictions, not because “big rental” owns a measly 4% of rental homes.
When Krispy Kreme donuts more than double in price over a ten-year period because of inflation and regulations, e.g. minimum wage laws, it’s inevitable that housing will too.
In addition, restrictive zoning, green mandates, and exorbitant development fees are pushing prices up further and restricting supply.
Why Is It So Dangerous to Blame Institutional Investors?
A. Politicians will scapegoat “Big Rental” to cover up their own shortcomings and impose even more restrictions that will end up hurting the housing market.
B. “Big Rental” actually serves a purpose.
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- They buy in dilapidated areas and fix up homes – especially in soft markets (think how they helped in 2010, when most individuals were afraid to buy).
- They maintain homes better than many individual owners.
- They provide single-family housing options to many people who could likely not afford to buy in any case.
- They are heavily concentrated in many of America’s weakest housing markets – across the Sunbelt in particular – that are actually depreciating right now.
Therefore, it is highly likely that thousands of home sellers are praying that the “Big Rental” does not pull out or get forced out of those markets. Those markets need all the help they can get.
