How corporations are buying up houses — robbing families of the American Dream
Homes in Spring Hill, Tenn., have quickly been bought up by corporations, their rents raised.Luke Sharrett
One morning in 2012, Phoenix real-estate developer Geoff Jacobs was playing golf when he got a surprising phone call.
by Larry Getlen
One of his employees, trying to bid on a house they wanted at auction, told him the price had reached their agreed-upon ceiling of $85,000 — a rare occurrence, since they usually snagged the homes they wanted without competition.
Jacobs told his employee to go up to $87,000. But the price kept rising.
“The price jumped to $90,000. Then $95,000. The home wound up selling for about $100,000,” writes Ryan Dezember in his new book, “Underwater: How Our American Dream of Homeownership Became a Nightmare” (Thomas Dunne Books), out now.
“Jacobs was bewildered. Who was this aggressive bidder? By the end of the day, he had a name. The bidder was from an outfit called Invitation Homes.”
Invitation Homes, it turned out, was owned by Blackstone Group, the world’s largest real-estate investor. Created after a company called Treehouse Group was folded into Blackstone, then renamed in 2012, Invitation Homes was on a $10 billion spree, purchasing $150 million worth of houses per week.
“At an auction in Sacramento, a house flipper named Ryan Heck was bewildered by a bidder who bought every house that hit the block,” Dezember writes, noting that the bidder went one dollar over every other bid until the other bidders conceded.
Since 2010, 700 houses in Spring Hill, Tenn., have been purchased by just four companies, who together own about 5 percent of the houses in the town.Luke Sharrett
“Neither Heck nor the other regulars recognized the dollar-over guy. It turned out he was with an out-of-town concern called Treehouse and had instructions to buy everything that cost less than what it would cost to build a similar house. Every house auctioned that day fit the bill.”
Moving forward, Heck tried to compete, sometimes even peeking over other bidders’ shoulders to “run the dollar-over routine on them.” But he was outmatched.
“He had a handful of cashier’s checks,” Dezember writes. “The new guys had duffle bags full.”
‘Underwater” describes how, in the wake of the 2008 financial crisis, corporations began buying suburban houses en masse and then renting them out, often for more than residents would have otherwise paid in rent or mortgage.
This has become so common that, while the phenomenon “didn’t exist a decade ago,” corporations bought one out of every 10 suburban homes sold in 2018.
Corporate homeownership can not only subject tenants to higher living costs, but often destroys their ability to buy these homes themselves, as companies pay top dollar to take them off the market.
As a result, America is quickly becoming a renter nation.
“Between 2006 and 2016, when the homeownership rate fell to its lowest level in fifty years, the number of renters grew by about a quarter,” Dezember writes.
While he notes that companies own around 300,000 US homes so far, this is just the tip of the iceberg, as they’re wealthy enough to buy, and tech-savvy enough to manage, “multiples more” with “ruthless efficiency.”
These companies aren’t just depriving potential homeowners of a place to call their own, he writes: they’re destroying the ability for thousands of middle-class American families to accumulate wealth.
“Home-price appreciation has historically been how Americans achieve financial prosperity,” Dezember writes. “Unlike stocks and bonds, ownership of which is concentrated at the top, houses are widely held. Roughly half of housing wealth is owned by America’s middle class.”
The bonanza really took off in 2011, when Morgan Stanley issued a report called “A Rentership Society.” With over 1.6 million foreclosed homes in the United States and more on the way, the report forecast “a surge in the number of renters and a potentially massive opportunity for investors to convert the glut of repossessed homes into rental properties.”
America’s investment managers were all in. By 2012, “more than $1 billion had been raised by investors for the purpose of doing just that. Some of the biggest names in finance were hoarding houses.”
Individual investors were soon mostly gone or absorbed into larger companies with investors like Warren Buffett, KKR of “Barbarians at the Gate” fame, and investment behemoth The Carlyle Group. Heck himself wound up joining American Homes 4 Rent, which was founded by billionaire self-storage magnate B. Wayne Hughes, and would own about 48,000 houses by the end of 2016. There is even a lobbying organization, the National Rental Home Council, to look after their interests in the government, such as defeating rent-control laws.
As the industry grew, foreclosure auctions in certain cities became major affairs. The first Tuesday of every month is auction day throughout Georgia, and corporate homebuyers fly in “for what was known among investors as Super Tuesday.”
“Heck and others of B. Wayne’s bidders would gather at a Sheraton Hotel the evening before, and divvy up $20 million or so of cashiers checks,” Dezember writes.
Their mission was to buy homes near good schools that families would feel comfortable in, nothing older than 20 years or smaller than three bedrooms and two bathrooms.
The industry’s ideal buyer was well-defined. Dezember notes that a company called Progress Residential, which owned around 20,000 homes, sought to provide “an aspirational living experience to tenants who were typically about 38 years old and married, with a child or two, annual income of about $88,000, less-than-stellar FICO credit scores around 665, and a hobbling $45,000 of debt. If they wanted to live the middle-class lifestyle to which they were accustomed, they’d have to rent.”
Buying foreclosed homes had its pitfalls, as buyers couldn’t see inside the homes before the purchase. While occasionally they’d get a treat, like marble countertops, often the surprises were more horrific.
“There were wild stories,” Dezember writes. “A corpse in the Carolinas. Basement marijuana farms. A turnover crew that renovated the wrong house in California, surprising a family just back from vacation with a new kitchen and news that their possessions were in a landfill.”
As investors realized the extent of their gold mine, they branched out beyond simply buying foreclosures and hit the open market, competing with everyday homebuyers.
As more corporations buy up homes, they are also forcing up rental prices, making it harder for Americans to save — and eventually buy a home themselves.Getty Images
Dezember recalls a three-bedroom, two-bath home in Spring Hill, Tennessee, that went on the market in April 2017. In the strong, fast-growing market, the seller had four bids on the house within hours.
“The high bid of $208,000 came from a couple with a child looking for their first house,” Dezember writes. “American Homes 4 Rent matched their offer, all cash.”
American Homes got the house, the seventh it had purchased on that street.
In fact, since 2010, 700 houses in Spring Hill have been purchased by just four companies, including American Homes 4 Rent and Progress Residential, Dezember writes. Together, the four owned about 5 percent of the houses in the town.
As a result, rents skyrocketed. When Dezember visited with the town’s vice mayor, Bruce Hull, in April 2017, he was told that, “It hasn’t been that long since you could get a three-bedroom, two-bath for $1,000 a month.”
Those houses were now closer to $1,800 a month, and this was by design.
At a real-estate investing conference, American Homes CEO David Singelyn said that the average income for applicants to his company’s homes had risen from $86,000 to $91,000 in one year, and that this was a sign that “rents had room to rise,” Dezember writes.
“This is a choice they make to pay rent, and their wherewithal to pay rent today as well as pay rent in the future, with increases, is sufficient,” Singelyn said. “It’s just up to us to educate tenants on a new way, that there will be annual rent increases.”