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Big Money Gobbles Single-Family Homes While Biden Plans to Build More

Wendell Husebo 3-4 minutes

President Joe Biden has revealed a $2.25 trillion dollar infrastructure proposal to build two million homes and apartments while big money funds are quickly scooping up nearly all available single-family homes.

According to the Hill, Biden’s proposal to build such housing “would spend four times the entire Department of Housing and Urban Development’s 2020 budget on a range of programs meant to fight a housing shortage exacerbated by the pandemic.”

Meanwhile, Jon Wanberg, a central Florida real estate broker and regional investor, says he is “getting offers from hedge funds on every listing … One acquisition manager told me that one of the many hedge funds he is working with is buying 500,000 residential homes,” Wanberg added.

Behind the curtain and before Biden proposed building more housing to mitigate the “affordability crisis,” he signed the coronavirus package in March, giving money in a “short-term bailout” to big money funds.

Research indicates pension funds invest around five percent of assets under management into hedge funds in a growing movement to adopt the asset class. Don Steinbrugge, CEO of hedge fund consulting firm Agecroft Partners, says the “Hedge fund industry assets under management will grow for the 11th time in 12 years in 2020.”

Indeed, Sen. Bill Hagerty (R-TN) said of the bill, “there’s more money in this to bail out union pension funds than all the money combined for vaccine distribution and testing.” Sen. Chuck Grassley (R-IA) also added, “Not only is [the Democrats’] plan totally unrelated to the pandemic, but it also does nothing to address the root cause of the problem.”

In essence, money ultimately originating from the American taxpayer was disbursed from government coffers to big money funds with massive purchasing power to buy homes and even whole housing developments, spurred by historically low interest rates, which Barron’s says is probable to increase inflation.

“Central bankers routinely deny any connection between their monetary policies and asset prices, even though that’s how those policies are transmitted to the real economy,” Barron’s reported on February 5. “’Pay no attention to that man behind the curtain,’ they all but insist, as the lightning and smoke jumps and hisses while they manipulate the controls, believing that they’re shrouded from view,” the financial outlet wrote.

Wanberg also believes inflation is coming due to the pandemic related stimulus with big money allocating their funds in relatively low-risk housing.

“And the signs of it are hedge funds trying to jump on the train before the train leaves the station,” which Wanberg warns may cause a “wealth divide,” and American workers who are receiving “their $600 checks can’t see it yet,” he told Breitbart News.

Wanberg reasoned, “The government is creating economic slaves and we are welcoming it and running to our mailboxes to pick up our stimulus checks. If you think the ‘Wealth Divide’ is bad now, just wait until hedge funds own all the real estate and you have to rent from them.”

However, many experts, including Federal Reserve Chair Jerome Powell assume the “double-digit annual surge in home prices a ‘passing phenomenon’ related to the pandemic,” Barron’s reported.

From the article: just wait until hedge funds own all the real estate and you have to rent from them.”

I remember during the 2010-2015 period, Big Biz was snapping up houses like candy, especially in hot markets like Atlanta. They didn't want to get into the real estate market for its own sake; they wanted somewhere safe to stash their money so that it wouldn't lose value while the economy went through its turmoils. Then on the other side of things, they could cash out and get back to business as usual.

Interest rates are low right now so getting a decent ROI on rentals is not too difficult. The funds aren’t looking to make huge returns. If they can borrow at 4% and make 6 to 6.5 % return they are happy. They bundle the rental income and sell the income stream as securities just as they did with subprime loans during the crisis.

Robin, that was one of the problems they were running into... the big banks weren't wanting to actually fix-and-maintain their houses. If their $300k house suddenly turned into a $275k house because they didn't do routine maintenance, that was okay for them...

For example, from an article in the Atlantic---

www.theatlantic.com/technology/archive/2019/02/single-family-landlords-wall-street/582394/

Between 2011 and 2017, some of the world’s largest private-equity groups and hedge funds, as well as other large investors, spent a combined $36 billion on more than 200,000 homes in ailing markets across the country. In one Atlanta zip code, they bought almost 90 percent of the 7,500 homes sold between January 2011 and June 2012; today, institutional investors own at least one in five single-family rentals in some parts of the metro area, according to Dan Immergluck, a professor at the Urban Studies Institute at Georgia State University. Some of the nation’s hardest-hit housing markets were finally stabilized.

The investors argued that they could be good landlords—better, in fact, than cash-strapped small-timers. According to Diane Tomb, the executive director of the National Rental Home Council, a trade group established in 2014, single-family rental companies “professionalized” a sector traditionally run by mom-and-pop landlords, bringing with them 24/7 responses to maintenance requests and a deep pool of capital they can spend on homes.

They also projected they could make money, which no one had done on a large scale in the home-rental business. “We wanted to rescue these neighborhoods and create a long-term, permanent income stream for our shareholders,” says Frederick Tuomi, who was until recently the president of Invitation Homes, which is now the largest single-family rental company in the nation. (Tuomi is currently on a temporary leave of absence to care for a family member.)

Wall Street analysts and potential shareholders, however, were skeptical. Maintaining thousands of homes of different sizes, ages, and conditions across an entire metro area seemed like a logistical nightmare. “How can you operate and create scale in that situation?” Sam Zell, the billionaire real-estate investor, told CNBC in 2013. “I don’t know how anybody can monitor thousands of houses.” When the new rental companies started offering shares to investors on the public market in late 2012, the response was tepid.

But housing trends were on the side of the investors: America was becoming a renter nation. According to census data, between 2007 and 2017, the United States added less than 1 million households in owner-occupied homes, but 6.5 million in renter-occupied homes. Many families wanted to live in a spacious house in a good school district, but could no longer afford to do so as owners. The homeownership rate bottomed out at 62.9 percent in 2016, down from a high of 69 percent in 2005.

Of course, the trends that favored these new landlords were largely produced by a financial crisis that Wall Street had itself abetted. That some of the same investment firms that had played a part in the housing crisis were now poised to profit from it made for a dismal irony. But if the new companies could deliver on their promises of making home rentals easy, affordable, and worry-free, perhaps everyone could win: The companies could return a profit, the housing market could be shored up, and houses that had lain fallow after the crash could once again be happy homes.

That’s not what happened. I talked with tenants from 24 households who lived or still live in homes owned by single-family rental companies. I also reviewed 21 lawsuits against three such companies in Gwinnett County, a suburb of Atlanta devastated by the housing crash. The tenants claim that, far from bringing efficiency and ease to the rental market, their corporate landlords are focusing on short-term profits in order to please shareholders, at the expense of tenant happiness and even safety. Many of the families I spoke with feel stuck in homes they don’t own, while pleading with faraway companies to complete much-needed repairs—and wondering how they once again ended up on the losing end of a Wall Street real estate gamble.