More and more property is snapped up by buyers who will never step foot in the house. There has been a notable increase in investment banking groups purchasing properties, targeting certain housing sectors and going up against young family buyers, and winning.
There have been some suggestions that property purchases like this are not that impactful on the market as a whole. The Atlantic points out that investors own only about 300 thousand houses of the roughly 140 million in houses in America – with Black Rock only owning 80 thousand of that figure. But, that ignores the strategic nature of these increasing investment portfolios.
Investors are not buying just any kind of property, but rather ones with the greatest prospect for growth, to the detriment of younger people. They target houses in cities with typically younger, working-class or lower-middle-class people who might have a good wage. This has taken the shape of 22% of houses bought in both Atlanta and Charlotte, and 20% in Phoenix. In its most extreme, investment firms were responsible for 90% of all purchases in Atlanta between 2011 and 2012.
The same tactic has also been taking place in the UK, as Black Rock has invested £100 million in a retirement village, banking on the fact that the population in the UK (and elsewhere) is growing older and more people will need retirement homes, and for longer too. They have also targeted student accommodation, following the trend from America.
Some suggestions moving to a renting culture, rather than a home-owning one, might be a good thing for countries like America. It would offer people flexible city-living, where they would not be tied down to property that might be difficult to buy with rising house prices.
In a rational economic understanding, renting is the better short-term option because it is cheaper than buying a home with a mortgage. But often that relies on market competition pushing rent prices down, which doesn’t seem to be happening.
Because these investors are buying properties wholesale, they can afford to keep prices high and leave no option for renters – they don’t need to compete against themselves. Furthermore, with high rents, they encourage other independent landlords to match their prices, making the deal worse for people who need a home. Investment firms typically recoup the cost of the house in eight years of renting, and then it profits up.
For the high cost of rent, the conditions are poor too. There are reports of water leakages, black mould, and insect infestations that large investment companies refuse to properly address. They stack high fees and issues onto the renter who has no ownership of the issues they face, simply because there is often the little alternative. Renters also have typically fewer legal protections than homeowners.
Housing is not a luxury, it’s a need, and moving can be difficult, so bad landlords rely on their renters becoming frustrated and accepting the conditions as they are, rather than big businesses sorting anything out of their pocket.
In countries where there are simply too few houses being built, investment companies buying up renting opportunities is forcing house prices up – good if you own a house, but bad if you don’t. They then offer out those houses with high rent, but young people cannot afford to buy where they need to and are forced to rent instead.
The likes of Blackrock are happy to buy for more than the market rate because as a large company they can absorb the difference, and in less than ten years the renting opportunities will pay off the price of the houses anyway. Meanwhile, young people in cities are being squeezed more and more, fuelling generational inequality.
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