Investment firms are blamed for aggravating California’s housing crisis. But is it won?

Natalie Hanson

SAN FRANCISCO (CN) — With a rush for affordable housing across much of the West Coast, experts say investment firms could influence the housing market in hot markets like the San Francisco Bay Area . But they disagree on the extent to which these investors are driving the severity of the statewide housing crisis.

One of the hardest hit housing markets in the Across the Bay area includes Berkeley, one of many California cities that let voters decide whether the authorities were to approve a vacancy tax to encourage landlords to fill their units. City leaders have recently cited large investment firms as contributing to the local housing availability crisis through real estate speculation.

In one summer report At the Berkeley City Council, city officials said big financial firms like BlackRock are among the biggest real estate owners in the country and can have a detrimental influence on the Bay Area market. The report says private equity-backed landlords are 18% more likely than non-equity-backed business owners to evict tenants, “who themselves are more likely to do so than small landlords.” .

“Redfin data shows that 13% of homes in Oakland were purchased by an institutional or corporate investor in the fourth quarter of 2021, an increase of 16.9% from the previous year. In San Francisco, 18% was acquired by institutional investors,” the report noted. “This follows a concerning national trend where large institutional investors have purchased huge numbers of homes since the start of the pandemic; more than 75% of these offers are in cash, and many without any inspection, excluding potential owners from the real estate market.

In Berkeley and likely other hot markets, some vacant units are in buildings “purchased for the sole purpose of accumulating more wealth, with no intention of housing tenants,” according to the report.

John Minot, of housing advocacy group East Bay for Everyone, said his organization believes big investment firms buying homes is “a worrying trend”. He said investment firms have realized they can “take advantage of profits that previously accrued mostly to a small share of lucky individual owners” and Invitation and Blackstone tell investors they are looking for regional markets that don’t build lots of housing, because more construction would hurt them.

However, Minot said the phenomenon was more a symptom than a cause of unaffordable housing, which he attributed to cities not building enough housing to meet demand for decades, especially in major areas. metropolitan.

“We think the reports proposing them (the investment firms) as the main culprits for the housing crisis are misleading,” Minot said. “While they acquire an increasing share of the houses that come up for sale from time to time (the flow), they still own a very small share of the total rental housing (the stock), so their influence on the market rental is low.”

Minot said businesses differ from homeowners and landlords who own fewer than 10 homes, who typically attend town hall meetings to lament that if more homes are built around them, their investment will suffer.

“Wealth accumulation is a major concern for traditional owners, particularly because our deeply unequal economy has caused families to focus on home ownership as a means of building wealth – which is a game to be played. zero sum,” he said. “If house prices rise more than the economy, that means renters are paying more of their income; yet we say that rising house prices are a good thing? »

Minot said building more housing at all income levels is the best defense against such investors, as are tenant protections like rent stabilization, justified evictions, rent registries and transparency in housing. beneficial ownership of the dwellings under Assembly Bill 889.

“All of these are limiting the operating practices of landowners large and small,” he said. “Individual owners and large investment firms need targeted regulations to limit the worst of what they do and allow them to invest better and in less predatory ways.”

Michael Manville, an associate professor of urban planning at UCLA’s Luskin School of Public Affairs, said there were other problems with Berkeley’s report, which he called “flawed and vague.”

“Institutional investors like to buy in the Bay Area because the Bay Area doesn’t build housing. These companies are feeding on scarcity,” Manville said. He pointed to BlackRock Annual Report showing that their business model is working because there aren’t enough homes, and said cities like Berkeley could “tax” these businesses simply by build more housing.

Manville said the report did not cite the claim that private equity-backed landlords are 18% more likely than non-equity-backed business owners to evict tenants, nor did it respond s ‘there is substantial evidence that institutional investors are keeping homes vacant.

He also thinks offering vacancy taxes on ballots, as a way to deter business owners from buying property and keeping it vacant, isn’t necessarily a good strategy when many California cities have very low vacancy rates, 7% or less.

“Essentially rents have gone up while vacancy has gone down, which makes sense,” he said. “A tax could generate revenue, which is good, and you could spend it on affordable housing, which is good, but that just recognizes that Berkeley needs more housing. The main way to keep it affordable is to build new housing, so the rich don’t buy it.

Berkeley city leaders, including the city manager and the mayor, did not respond to requests for comment to clarify Manville’s concerns about their report.

BlackRock’s media relations team declined to comment. Spokesman Christopher Beattie said via email: “Contrary to some speculation and misperceptions, BlackRock is not buying single-family homes in the United States.” provided a statement the company circulated to address growing concerns about its real estate goals.

The company says it has invested about $120 billion in the US residential real estate market on behalf of its clients and has accused major asset managers and private equity firms of buying single-family homes.