On Big Corporate Homeowners

Corporate homeowners are making it harder to buy homes.

Especially little cheap homes. The same ones first-time homebuyers are vying for.

My first house was a cheap and shitty one.  Some repairs were made, some love put in, and eventually I sold it for a small but nice profit. That profit allowed me to (eventually) get a slightly nicer house but, more importantly, that first little house allowed me to better control my finances and it gave me immense satisfaction. Without it, I’d still be renting and my net worth would still be zero.

I can’t overstate how much that first little house contributed to my well-being!

Knowing how crucial it was led me to dig deeper into this corporate homebuying crap and how it may change our future.

Homes are a need and an asset. Sure, homeownership isn’t right for everybody.  But it helps build financial equity and create net worth. If a person has the desire to buy a home, a billion-dollar investment firm shouldn’t be their competition.

For great data on corporate homeownership, check out Corporate Landlords and Market Power, by Desiree Fields and Manon Vergerio. Their article confirmed many of my suspicions on the growth of institutional investors in our housing market.

As noted by Slate, it isn’t that investors are buying all the homes, because of course they aren’t. But they’re buying the homes that first-time homeowners need to get their foot in the door. The cheap ones and the shitty ones. The ones like my first house.

Stateline data shows, 24% of homes were bought by institutional investors in 2021. In the Sunbelt states, the figure is even worse- a staggering 29-33 %. I am pretty sure these figures don’t reflect all those second-home Airbnb purchases either. Yikes. This drives up competition and cost for people who are trying to buy a home- especially their first home.

Four reasons corporate homeownership should be limited.

1. Housing isn’t always a great investment and institutional ibuying/flipping is incredibly risky.

For investors, housing is riskier than stocks and bonds. Warren Buffet and countless others agree. There’s a huge amount of overhead and enormous range when it comes to valuing property. Size, location, condition and things like railroads, airports, views, and countless other variables affect value.

When Zillow said they were entering the market as an ibuyer, small-time flippers thought they were nuts. To be a flipper with all the skills and local market knowledge is one thing- but Zillow’s segue into flipping was quite another.

Lots of people thought it would end as a shitshow. And it did- according to The Real Deal, Zillow lost over 880 million dollars in 2021. Opendoor, another ibuying platform, lost even more- 1.35 billion dollars in 2022. (look to 2008 and take a guess at who will eventually pay for these risks when they finally explode).

Do you know what else is gross here? Zillow sold many of those losses to other institutional investors and ibuyers!  Bloomberg reported that Zillow’s plan was to group 7,000 single family homes to be sold off in packages. From a business standpoint, it was a better strategy than offloading them one-by-one to the people who were desperately trying to purchase them. But did they “do the right thing”, as stated as one of their corporate values? Arguably, that depends. This absurdity occurred during one of the largest “housing shortages” of all time (see note at the bottom).

2. One of the only means of wealth accumulation for us “little guys” is through property ownership and corporations shouldn’t be able to hog it up!

Homeownership is how most (not-rich) people accumulate wealth. According to NAHB, the median homeowner net worth in 2019 was $255,000 whereas renter median net worth was just $6,000[i].

The net worth stuff is important.

But there’s another aspect to wealth that’s less discussed. I’m going to just call it life wealth.

Homeownership increases physical, emotional, and financial well-being.  It also provides stability. As we age, it’s especially important to insulate ourselves from higher housing costs. Then there’s things like our sense of agency. Let’s not get overly complex though. The point is, our net worth, financial well-being and life wealth are all interconnected and homeownership is a major thread in that web.

How is someone supposed to gain ownership if corporations become our competition? People can’t compete with corporations because corporations have cash, scale, and data. Do we want homeownership to be a thing of the past?[ii] Look where this is already prevalent- particularly in Atlanta and the Sunbelt region. It is now nearly impossible (for average earners) to buy homes where institutional investors have gained market share. Yuck.

3. Algorithms are collecting your housing and rent data and using it against you.

First, data can be used against us simply by being the first to know where people are moving to and predicting which areas are going to gentrify next. I’m guessing that data is sometimes sold to corporations, allowing them to gobble up those properties before anybody else can.

After gobbling up those properties, they rent them out. Then they collect that data for optimization.

I’d actually go so far as to say this is a borderline, if not outright, violation of anti-trust laws. People are supposed to be protected from big corporations banding together and price-setting. It’s been deemed to be hurtful to consumers and anti-competitive. However, this recent article in ProPublica shows that landlords are indeed compiling their private data to maximize profit. To sum it up, the article states,

To arrive at a recommended rent, the software deploys an algorithm — a set of mathematical rules — to analyze a trove of data RealPage gathers from clients, including private information on what nearby competitors charge.

For tenants, the system upends the practice of negotiating with apartment building staff. RealPage discourages bargaining with renters and has even recommended that landlords in some cases accept a lower occupancy rate in order to raise rents and make more money.

I’d like to highlight three separate problems with this corporate use of housing algorithms.

  • The first problem is obvious- landlords are using software to compile private data and then skewer renters for as much as possible.
  • The second problem is the vicious cycle that it creates- the renter is paying so much money in rent that it becomes difficult to save up to purchase their own home. This locks people into perpetual renter-ship which potentially keeps homes in the hands of the corporate owners. (I talk more about this in my post on algorithms, if you’re interested)
  • The third problem is really a question: Do we want corporations to control our housing? We are already an economy of rent-this, subscribe-to-that. And I’m so sick of it. I don’t want this post to be hijacked by the despairs of the financial inequality and the wealth gap. But come on- wake up, people! American dream.?.. ha! More like welcome to the nightmare.

4. Institutional investors are more likely to neglect properties.

Over time, on a large scale, this can turn the nice little neighborhood where you grew up into a place you wouldn’t want to live. Homeowners are more invested in their town, neighborhood and community. They’re more likely to care for their home and maintain it. Institutional landlords often ignore or postpone repairs and general maintenance. They may as well just say, “If you have an issue or a repair needs to be made, please contact us at 11 Wall Street, New York, NY 10005.”

Corporations do not have the same goals as us; especially giant out-of-town investors. Corporations are businesses and they exist (mostly) to make money!

No one wants a new feudal land tenure where corporations are the new kings (well, maybe not no one).

Okay, time to calm down, think about this, and prevent it from becoming a dismal reality.

Nothing is fucked here…

Or is it?

HouseRat Zero

[i] You can see more detailed data on homeownership and wealth here or in this NPR interview.

[ii] Some people actually do want homeowner ship to be a thing of the past. Some also argue that it is better to rent. But I don’t want homeownership to be a thing of the past, I don’t want to be a renter, and I don’t want anyone making these decisions for me. If you’re sitting there thinking that it’s better to rent, I need to ask; are you already wealthy? Do you have a large salary or own a web-based business? Genuinely curious.

If you believed there was a “housing shortage”, Zelman and Associates get into the nitty gritty of the “shortage” here if you’re interested.

Additional totally ridiculous quote I’m pondering today— “they want you to be poor”… said by my grandma (and probably others). I’d always written it off… And no, I can’t tell you who “they” are.

This article is a continuation of my last post on The Great Housing Lollapalooza. There is some overlap of information, but I felt it was necessary for those who didn’t read both posts.

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