How Wall Street & Private Equity Have become America's Landlord

J Marzo
Jul 11, 2024
5 min read

Introduction

In the aftermath of the 2008 housing crash, a new trend emerged in the American real estate market: private equity firms and Wall Street investors began buying up single-family homes, condos, and even entire neighborhoods. This shift has had profound implications for home prices, rental rates, and housing affordability. By examining the history of the 2008 housing crash, the subsequent rise of institutional investors in real estate, and the drastic changes in home and rent prices, we can understand the significant impact these entities have had on the housing market.

The 2008 Housing Crash

The 2008 housing crash, also known as the subprime mortgage crisis, was a major financial collapse triggered by the bursting of the housing bubble in the United States. Leading up to the crash, banks and mortgage lenders had been offering subprime loans to borrowers with poor credit histories, often with little regard for their ability to repay. These risky loans were then bundled into mortgage-backed securities and sold to investors, spreading the risk throughout the financial system (Today's Homeowner) (Redfin).

When housing prices began to decline, many homeowners found themselves underwater, owing more on their mortgages than their homes were worth. This led to a wave of foreclosures, causing the value of mortgage-backed securities to plummet and triggering a global financial crisis. The U.S. government responded with a series of bailouts and financial reforms, but the damage had been done. Home prices fell sharply, and millions of Americans lost their homes (Today's Homeowner) (Redfin).

Wall Street Steps In

As the dust settled from the housing crash, private equity firms and Wall Street investors saw an opportunity. With home prices at historic lows and a glut of foreclosed properties on the market, these investors began buying up single-family homes and condos in bulk. Companies like Blackstone, Invitation Homes, American Homes 4 Rent, Colony Capital, and Starwood Waypoint became major players in this new wave of institutional real estate investment (Redfin) (The Mortgage Reports).

Access to Cheap Credit

One of the critical factors that facilitated this acquisition spree was the extended period of low interest rates. Following the financial crisis, the Federal Reserve kept interest rates near zero to stimulate the economy. This access to cheap credit allowed private equity firms and Wall Street investors to borrow large sums of money at low cost, enabling them to purchase vast numbers of properties with minimal financing expenses (The Mortgage Reports).

Rising Home and Rent Prices

To understand the impact of private equity and Wall Street investors on the housing market, it's helpful to use 2013 as a baseline for comparison. By this time, institutional investors had already begun to establish a significant presence in the real estate market.

Median Home Prices:
In 2013, the median home price in the United States was approximately $247,000 (Today's Homeowner).
As of 2023, the median home price has surged to over $416,000 (Redfin).
Median Rent Prices:
In 2013, the median monthly rent in the United States was around $1,100 (Today's Homeowner).
As of 2023, the median monthly rent has increased to approximately $1,895 (Redfin).

This dramatic rise in both home prices and rent can be attributed, in part, to the influence of institutional investors. As of 2022, investment companies accounted for about 22% of all single-family home purchases in the United States (The Mortgage Reports).

Case Study: Florida

Florida provides a striking example of how private equity and Wall Street investors have transformed the housing market. In cities like Miami, Tampa, and Orlando, institutional investors have built massive condo complexes and acquired large numbers of single-family homes. These properties are often rented out at premium rates, contributing to the overall increase in rental prices.

Miami:
Median Home Price:
In 2013: $270,000 (Today's Homeowner).
In 2023: $515,000 (The Mortgage Reports).
Median Rent:
In 2013: $1,250 per month (Today's Homeowner).
In 2023: $2,500 per month (The Mortgage Reports).
Tampa:
Median Home Price:
In 2013: $180,000 (Today's Homeowner).
In 2023: $380,000 (The Mortgage Reports).
Median Rent:
In 2013: $1,100 per month (Today's Homeowner).
In 2023: $2,000 per month (The Mortgage Reports).
Orlando:
Median Home Price:
In 2013: $190,000 (Today's Homeowner).
In 2023: $420,000 (The Mortgage Reports).
Median Rent:
In 2013: $1,150 per month (Today's Homeowner).
In 2023: $2,200 per month (The Mortgage Reports).

Record Numbers of Evictions

In recent years, Florida has seen record numbers of evictions, exacerbated by the rise in rental prices and economic pressures from the COVID-19 pandemic. According to a study by Princeton University’s Eviction Lab, Florida cities like Jacksonville, Tampa, and Orlando rank among the highest in the nation for eviction rates. In 2021 alone, Tampa reported over 20,000 eviction filings, while Orlando saw nearly 18,000 (The Mortgage Reports).

Median Wage Changes

While home and rent prices have soared, median wages have not kept pace. In 2013, the median wage in the United States was approximately $51,939. As of 2023, the median wage has only increased to around $59,428 (The Mortgage Reports). This modest growth in wages has not matched the rapid rise in housing costs, leading to increased financial strain for many Americans (The Mortgage Reports).

The Broader Impact

The involvement of private equity and Wall Street in the housing market has had several broader implications:

Decreased Housing Affordability: The rise in home prices and rent has made it increasingly difficult for first-time homebuyers and low-income renters to find affordable housing (Redfin) (The Mortgage Reports).
Increased Economic Inequality: As institutional investors acquire more properties, wealth becomes concentrated among a smaller group of large corporations, exacerbating economic inequality (The Mortgage Reports).
Changes in Community Dynamics: The shift from homeownership to rental properties can alter the social fabric of neighborhoods, reducing the sense of community and long-term investment in the area (Redfin) (The Mortgage Reports).
Regulatory and Policy Challenges: Policymakers are grappling with how to address the impact of institutional investors on the housing market. Proposed solutions include tax incentives for first-time homebuyers, restrictions on the number of properties a single entity can own, and increased regulation of rental practices (The Mortgage Reports).

Conclusion

The involvement of private equity and Wall Street investors in the housing market represents a significant shift with wide-ranging implications. As home prices and rental rates continue to rise, the debate over the role of institutional investors in real estate will likely intensify. Understanding this trend is crucial for grasping the current state of the housing market and its future trajectory. Policymakers, community groups, and investment firms will all play a role in shaping the future of housing in America.

Citations

Median Home Price in 2013: Source: U.S. Census Bureau
Median Home Price in 2023: Source: National Association of Realtors
Median Rent Price in 2013: Source: HUD User
Median Rent Price in 2023: Source: Zillow
Miami Home Price in 2013: Source: Miami Association of Realtors
Miami Home Price in 2023: Source: Redfin
Miami Rent Price in 2013: Source: Zumper
Miami Rent Price in 2023: Source: RentCafe
Tampa Home Price in 2013: Source: Greater Tampa Realtors
Tampa Home Price in 2023: Source: Zillow
Tampa Rent Price in 2013: Source: Apartment List
Tampa Rent Price in 2023: Source: RentCafe
Orlando Home Price in 2013: Source: Orlando Regional Realtor Association