Editorial: Who's really behind the affordable housing crisis

For aspiring homeowners, the housing market is a discouraging and confusing testament to the lack of affordable housing across the country.

Home ownership rates haven’t yet recovered from the 2008 financial crisis, and the median home price has risen 28 percent in the last two years as the pandemic accelerated existing trends in housing costs. However, income has not increased proportionally to the cost of a home. The median home costs 4.5 to 5 times the median household income in the U.S. 

When it comes time to assign blame, it’s important to understand the difference between private equity firm homebuying and real-estate company homebuying.

Understanding the current housing market means untangling a complex system of real estate advertisers, corporate homebuyers and how they compete with new homeowners. Social media attempts to provide answers.

Twitter threads and viral TikToks shed light on Zillow’s home buying practices, accusing the real-estate company of manipulating prices in the already unaffordable housing market.

While it’s true that Zillow attempts to profit by renovating and reselling homes at or slightly above market value, this company’s practices are only a drop in the bucket of corporate homebuying.

When Zillow purchases a home to resell, it assumes the risk if the house does not sell at its listed price. When Zillow successfully resells above market value, it marginally contributes to the issue of rising home prices. However, this is not always the case.

The real issue emerges when companies buy homes not to resell, but to rent. Wall Street homebuying is one of the main drivers behind the affordable housing crisis. When companies — such as American Homes 4 Rent and Invitation Homes — buy up single-family housing, they increase the price of homes by creating scarcity in the market.

Meanwhile, they act as corporate landlords, with rent prices at the mercy of Wall Street. The rental value of single-family homes has risen an estimated 15 percent since the beginning of the pandemic. Additionally, conditions in these rental properties are notoriously poor, and corporate landlords are found to be far more likely to evict tenants — or use the threat of eviction to their advantage.

Invitation Homes, for example, is a property management company that was formed from Blackstone, a private equity firm. Invitation Homes is concentrated in the South, and owns properties in 16 U.S. cities.

Because of the company’s expansive assets, Invitation Homes has the ability to get mortgages at significantly lower interest rates than the average homebuyer — 1.4 percent, compared to the average 2 to 4 percent.

When Invitation Homes makes an offer on a property, it also tends to make cash offers, which are particularly appealing in the current seller’s market.

Twenty-two percent of home purchases in Charlotte are by investors. In contrast, nationally, one in five homes were sold to investors last year.

Although only one to two percent of these sales were by larger institutionally-backed investors, the increasing rate of acquisitions since the pandemic has proven that private equity firms are a powerful backbone to the single-family housing market — and are driving its scarcity.

The problem of corporate home buying is only growing more expansive, with little being done to mitigate the effects of single-family homes being converted into rental properties by private equity firms.

Major cities bear the brunt of corporate homebuying, and it has the  potential to worsen in Orange and Durham Counties as the Triangle sees economic growth and development.

A lack of affordable housing anywhere is cause for concern.

Once we know where to place the blame, we can advocate for legislation that targets Wall Street and pension firms. Our state governments should prohibit or put caps on corporate home buying, especially when it comes to foreclosure auctions. For example, a 2020 California bill prevents the “bundling” of homes at foreclosure auctions.

Affordable housing should be subsidized at the local level, and heftier fines should be implemented for landlords of poorly maintained properties.

There is no Band-Aid fix to the institutionalized problems of the real estate market, which has historically discriminated against Black homeowners and opened the doors to predatory lending practices that led to the 2008 recession.

Still, these steps can protect prospective homeowners and reinstate the idea that affordable and quality housing is a right.

@dthopinion

opinion@dailytarheel.com