NSERLINERS, MORE More than four-fifths of renters have the rare opportunity to drown out their anger at rising home prices on September 26th. A referendum on the same day as Germany’s national elections commented on whether the city should effectively “exclude” some of Germany’s largest residential real estate companies, affecting up to 240,000 homes. increase. Voting is not binding. But the impact on the housing market is already having an impact. On September 17, two giant real estate investment trusts, Vonovia, and Deutsche Wohnen, a company targeting the acquisition of € 19.1 billion ($ 22.5 billion), sold about 15,000 apartments to the city for € 2.5 billion. I announced that. They described it as a friendly gesture. But it was also a thinly obscured attempt to stop the keys of my home from being stripped.
Whatever the outcome of the referendum, it serves as a warning to institutional investors who accumulate housing assets in Europe and the United States. Real estate investment trust (REITs), Private-equity firms, insurance companies and pension funds see the single-family rental housing market as a relatively high-yielding hedge against inflation free from the effects of blockages on pandemic offices and stores. However, affordable housing has a high degree of political sensitivity. In Berlin, rent has almost doubled in 10 years. Throughout Europe, their rise outweighs the rise in wages. In the United States, where a quarter of renters pay landlords more than half of their income, June rents rose 7.5% from 1.4% last year. The largest increases were in Phoenix and Las Vegas, with 16.5% and 12.9% increases over the same period, respectively. Nationally, it’s hard to blame institutional investors for rising rents. However, in some cities where portfolios are concentrated, faceless megacorps are increasingly being seen as part of the problem.
The biggest name is well known. BlackRock and JPMorgan Chase’s wealth management business is distinctive among the crowd of buyers. KKRA private equity company, is building a new single-family home entity in the United States. The amount of money involved is rising rapidly. According to housing broker Redfin, an estimated $ 87 billion institutional investors entered the US rental housing market in the first half of this year. In the second quarter, about 16% of single-family homes were purchased by investors, up from more than 9% in the previous year. Similar changes are underway in Europe, with companies such as Goldman Sachs, Aviva, Regal & General entering the market. Lloyds Banking Group, the UK’s largest mortgage lender, has also moved to homes with the goal of buying 50,000 homes within the next 10 years. It can make it the country’s largest landlord.
This is not the first time the investment market is booming. The financial conglomerate Blackstone was one of the first large investors to buy mortgage homes after the 2007-2009 global financial crisis, many of which are vacant or devastated. The company participated in a foreclosure auction at a county office in the United States and drove street by street, comparing neighborhoods and school districts. In 2012, we paid $ 100,000 for our first purchase in Phoenix. Soon it was spending $ 125 million on the house every week. That same year, Blackstone created Invitation Homes, which went public in 2017 and is now the largest owner of single-family homes in the United States, two years later, before selling its stake. Today, Invitation Homes owns 80,000 of the total market for 16.2 million detached rental homes. Housing bets are dividends paid before and after Invitation Homes went public, giving Blackstone about $ 7 billion, or more than double the initial investment. Returning to the market, the company recently acquired Home Partners of America, which owns more than 17,000 single-family homes, for $ 6 billion. It gives the tenant the option to buy.
The main impetus for new investor enthusiasm is different than it was ten years ago. It’s partly because of demographics. After the financial crisis, many millennials favored Metropolitan Flats in establishing their careers. As many of them enter middle age (the American cohort aged 35-44 is expected to grow at twice the average pace over the next five years), they want more space. It’s also because of the pandemic. If working from home remains attractive, demand for housing far from the city center will increase. This helps explain why institutional investors have flocked to secondary cities such as Phoenix, Raleigh, Greensboro and Dayton.
Many of these cohorts prefer to buy rather than rent, but high home prices are an obstacle. In the United States, the median housing is about 4.3 times the median household income in 2019, up from 3.9 times in 2002. In the UK, the average housing cost is now more than eight times the average income. This is a level that has only been violated twice in the last 120 years. Year. Even if your rent is rising, renting a suburban home with an office or room for parenting may be a tentative option.
Some have blamed large investors for both rising home prices and rising rents. At the aggregation level, this is difficult to create. Professional investors own only 2% of the total stake in rental housing in the United States. In Europe, less than 5% of residential real estate is in the hands of large exchange-traded funds. But in cities where institutional investors are becoming more and more active, they can have a greater impact. They also often pay in cash, giving them an edge over mortgage buyers in highly competitive markets. According to Redfin, one-sixth of US home sales went to investors between April and June. In cities such as Atlanta, Miami and Phoenix, this number was a quarter.
It may explain some of the political scrutiny. “Institutional investors are walking a tightrope,” says Cedric Rachance of real estate analytics firm Green Street. On the other hand, rising rents make investment more attractive. On the other hand, they lead to stricter policy responses. The White House puts restrictions on the sale of low-priced homes to large investors. In Ireland, property taxes have been raised to prevent institutional investors from getting family homes that are usually sold to first-time buyers.
Such regulatory compliance can please the crowd. They do not solve the rental problem. According to one study, rent management policies in Catalonia, a region of Spain, not only failed to make the market more affordable, but actually opposed it. The number of available homes has decreased by 12%, but prices have not changed. Similarly, researchers investigating the effects of a five-year rent freeze in Berlin found that the number of rental properties fell last year. Catalan law has been challenged by the Constitutional Court. Berlin has been overthrown.
Instead, more housing construction is the answer. Some landlords claim to increase their housing stock by providing developers with the certainty of bulk purchases. Renner, America’s largest homebuilder, recently signed a $ 4 billion deal with investors, including the construction of more than 3,000 homes. Moreover, REITIn the United States, such as Invitation Homes and American Homes 4 Rent, we are expanding our homes or strengthening partnerships with homebuilders to increase supply. In the UK, one-fifth of new homes could be institutionally owned by the end of the decade, and Lloyds has announced a fund to boost homebuilding in exchange for some of its profits. Professional landlords who own multiple properties claim to be able to offer better service, more maintenance, and longer leases than individual landlords who can sell out at any time.
However, the pandemic has led to anemia in global housing construction. Labor and material shortages are stalling growth. According to real estate firm Amherst Capital, fewer homes on the market mean that an American institutional investor increased its portfolio by 1.5% in 2020, down from 9.2% in 2018. As housing construction declines, rents are more likely to continue to rise. Annual revenues in the US and Europe are expected to reach 15.1% and 17.5%, respectively, over the next few years. Therefore, asset classes remain attractive from a revenue perspective, but more risky from a regulatory perspective. Even if the majority of Berlin’s renters vote against the landlord, it’s hard to imagine a meaningful legislative change to curb property rights. But for the most greedy investors, the writing is on the walls, four windows and doors. ■■
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This article was published in the printed version of the Treasury and Economy section under the heading “New Rent Seeking.”
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