Home Money How Wall Street May Kill the Housing Rental Market

How Wall Street May Kill the Housing Rental Market

by Chris Poindexter

Even though renting is the better financial option for the majority of people, there are downsides associated with the rental lifestyle. According to Gallup, renters who end up buying a home do so for many reasons that have nothing to do with the financial realities.

Real estate agents typically hear about over-protective landlords invading the privacy of renters, rising rents, and small repairs that can take days or weeks. What real estate agents don’t say is that most renters buying a home will be trading one set of problems for another. The latest insult to home buyers comes from contract mortgage servicers, which are accountable to no one in the process of handling your mortgage payments and escrow.

A new darkness has settled over the rental housing market, that may very well combine the worst elements of renting with the worst elements of buying a home. Your new landlord may be one of several large banks, investment houses, and hedge funds that have been buying up homes from foreclosure sales, packaging them into investment instruments, and then marketing the derivatives.

A new darkness has settled over the rental housing market, combining the worst of renting with the worst of buying.

In the days after the housing crash, the US real estate market was swamped with inventory, and awash in a growing sea of former homeowners with a foreclosure and bankruptcy on their credit records. Prices on single family homes fell as much as 35% in some markets. Wall Street banks and investment houses smelled opportunity, and used their access to nearly interest-free money from the Federal Reserve to start buying up foreclosed properties at a huge discount — frequently out-bidding locals and needy families with a virtually unlimited supply of 0.25% interest cash, courtesy of Uncle Sam. The banks then converted the homes into rentals, hired companies to manage them under contract, and bundled the rentals into funds which were sold to investors.

One of the largest investment companies snapping up single family homes from foreclosure is Blackstone Vanguard, working through a number of companies to buy single family homes in places like Phoenix, Atlanta, and Miami. Sometimes Blackstone backed companies would buy as many as 1-in-3 homes sold in foreclosure.

The trend toward corporate landlords has not been good for renters. The companies that manage the properties are likely in another state, and may be handling as many as 75,000 – 80,000 homes. Renters complain about not being able to reach a real person, about repairs that never get done, and bogus late fees. In frustration, many have taken to airing out their complaints on Yelp, Zillow, and various other online complaint boards.

The concerns go beyond poor treatment of renters. With corporate owners becoming some of the largest landowners in some cities and municipalities, city councils and local government are finding their corporate neighbors are demanding favorable treatment on assessments and taxes. The irony is that many of these companies are the very same ones that fueled the subprime lending crisis which created these problems in the first place.

The losers in our dysfunctional housing market are honest consumers trying to do the right thing. These are people who work hard, make their rent and mortgage payments on time, and generally try to do the right thing. Renters are getting stiffed by corporate landlords, and buyers are getting stiffed by contract mortgage service companies. The list of complaints to the Consumer Protection Bureau and the FTC is long and growing.

Wall Street’s callous indifference will frequently cost them, but they pay the fines as part of the cost of doing business, and keep raking in the cash while giving as little as possible in return. Wall Street trashed our housing market, and nearly dragged the rest of the economy over a cliff with them — and now they’ve set their sights on the housing rental market. At this point, I think we’ve earned the right to be skeptical.

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