Corporate Investors Own Nearly Half of This City's Residential Property
Host Abby Kinney, an urban planner in Kansas City, and regular cohost Chuck Marohn, Strong Towns founder and president.
One hundred years ago, homes were primarily places for people to live, and weren’t considered as investments. Most Americans acquired wealth through income, and homes were only partially an investment consideration.
For many reasons since the Great Depression, home ownership has begun to play a larger role than income in carrying generational wealth for Americans. “Housing has become (more of) a financial investment, not a place where you live,” Strong Towns founder Charles Marohn states in this latest episode of Upzoned. “And that changes everything about how we deal with housing.”
Those changes include the role of institutional investors, who have become a much more significant player in many housing markets.
Upzoned host Abby Kinney and Marohn, her regular guest, talk over an article about research done by the Rutgers Center on Law, Inequality and Metropolitan Equity (CLiME). The study found corporate investors in Newark, New Jersey, now own nearly half of Newark’s residential property, the highest rate in the nation, researchers said.
Marohn says the example of big investors buying so many properties in Newark is probably not reflected nationwide, but large cash buyers have definitely distorted the housing market and made it more volatile.
“I don’t think it’s the overwhelming factor in home prices, but it is a big factor, “ he says. Investors drunk with liquidity can easily pay 5–10% more and distort the market in ways that make it difficult for individual buyers to compete.
Kinney points out the suburban development model is a natural fit for large investors like this, because developers can build a subdivision all at once, sell it as a package to investors who can rent it, then offload it in 15–20 years when the maintenance bill comes due. But this article discusses corporate owners in urban settings, she notes. Either way, the capital used by large investors to purchase homes doesn’t come from traditional and manageable FHA-backed loans, so home prices will be much more likely to change dramatically.
Looking to the future, it seems likely prices will drop at some point, but Marohn expects them to be propped up with a government stimulus of some kind. It seems Americans would rather suffer by making groceries cost twice as much (inflation) rather than allowing our houses to lose half their value (deflation), Marohn says.
This is the price of having a “growth at all costs” policy, he adds. Ultimately, you get into a situation where it will work itself out in one painful way or another. If you can find a community you like and want to be there for the long term, getting a mortgage that asks for a stretch is probably okay, but housing is a more nuanced investment right now.
Dig into the details of this discussion and hear an early notice about an upcoming Strong Towns book on housing on this week’s Upzoned.
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