Homeownership has become a delusional goal for most Americans. Not only is there a ridiculous gap in median household income ($74,580) to median house sales prices ($433,100) but Americans are forced to compete with well-financed private equity firms in the housing market. Private equity firms comprise a group of investors who pool their money to purchase properties, aka pool investments, and split profit amongst each other. Additionally, they are some of the biggest corporate landlords in the country. According to Americans for Financial Reform, an estimated 1.6 million families rent real estate owned by private equity firms.
According to a report by MetLife, by 2030 an estimated 7.6 million single-family rental homes in the U.S. or more than 40% could be owned by corporate investors. Furthermore, this is likely a wild underestimate considering the lack of transparency regarding ownership records. According to a 20-year period study published by Cambridge Associates, the average return rate for private equity firms was 8.75% higher annually than the S&P 500. This means that private equity might offer a level of financial security otherwise not available for the average homebuyer. Traditionally investment firms and financial institutions sought out multifamily properties like apartments but the 2009 recession allowed investors to profit off of single-family homes due to lower property prices and lower interest rates. Subsequently, the purchase of single-family homes grew incrementally from 10%-15% annually.
Private equity is generally restricted to the wealthy and typically has high investment minimums. Investment requirement minimums are often as high as $25 million and the Security and Exchange Commission only allows the participation of “accredited investors.” Accredited investors must meet one of the two requirements: Have a net worth of more than $1 million (excluding their primary residence) or have an income of at least $200,000 for the past two years with the potential of equal income for the current year. Essentially average Americans are competing with a group of millionaires for single-family homes.
Private equity firms are exasperating the housing crisis. While working-class Americans are struggling amid the housing crisis, private equity firms are buying up all available apartment buildings, trapping Americans into a cycle of renting. Half of renters in America spend at least 30% of their income on rent while another quarter of Americans spend 50%. Americans are so desperate for relief from the housing crisis that they support various untraditional policy initiatives to combat the housing crisis, one of the most popular is converting offices, hotels and other buildings into living quarters (81%).
Although, many Americans would like to address the issue. Many congress members withhold effective policies that would combat private equity firms and their predatory investments. In fact, congress supports and enables private equity firms. According to opensecrets, the private equity industry spent $16.5 million lobbying Congress last year with the House and Senate majority accepting money from the industry.
For example, Sen. Rick Scott has invested an overwhelming $76.5 million in private equity. Additionally, Sen. Mark Warner invested $30.8 million in private equity and has stated that capitalism was “under assault” referencing those in favor of closing the carried-interest loophole. Sen. Mitt Romney invested $16.4 million in private equity, which is ironic because in his 2012 presidential campaign, he addressed all of Obama's supporters as “freeloaders” who pay no taxes and rely on government assistance, yet politicians such as himself benefit from the interest loophole understood as a federal tax law that allows a select few of people with hedge funds and private equity - to collect their pay at a much lower tax rate than all other Americans.
To overcome the housing crisis we must address the role private equity firms play in the housing industry and address the predatory representatives who take a stance in self-interested legislation. Rep. Adam Smith's Merkley/Smith bill would essentially force big corporations to divest their current holdings of single-family homes over the next 10 years. Entities that fail to divest will be heavily taxed and the taxes collected will be put towards a new housing trust fund for downpayment assistance for aspiring homeowners. Not only must we support legislation and legislators in favor of a more just economy, but voters must also use their votes to vote self-interested members out of power and de-influence the private equity industry.
Acknowledgment: The opinions expressed in this article are those of the individual author.
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