Late Capitalism is coming for the last pillar of the American Dream

 Bullseye (nationalrealestateinvestor)

Bullseye (nationalrealestateinvestor)

Today the Wall Street Journal and its dizzying “everything is fine” tone explored the booming sector of home-buying. We’ve built our entire economy and political cultural around homeownership in the US, so you can see why this could be a good thing. But it is not. It is a terrible thing.

That’s because the people buying these homes aren’t people at all. They are “sovereign-wealth funds, insurance companies, hedge funds, pensions, [and] asset managers” and they are buying bundles of single-family homes with the clear intention of renting them for the long-term. In fact, many of these groups are raising billions of dollars to expand their portfolios. 

I’ve written about how Wall Street is becoming a lot of peoples’ landlord, and how it exposes how fraudulent US housing policy is, but the trend is only getting bigger and scarier. The biggest players in this new market own thousands of single-family homes, mostly in markets like Atlanta, Phoenix, or Nashville where populations are growing. They are squeezing out many potential homeowners in the process.

The economics are clear and deeply cynical. Mega-financial institutions are taking advantage of the average American’s inability to buy a home because of high debts and low wages on the household-side and higher mortgage rates/prices and leaner inventories on the market-side. 

If that wasn’t bad enough, these institutions still reap all the government-subsidized benefits of homeownership that were designed to be passed along to families. I’ve written about the $134 billion the US government spends a year on subsidizing homeownership, most of which goes to wealthy home-owners already. It’s insanely wasteful and deeply unfair. But does anyone want a hedge fund to get tax breaks for owning a home and renting it out to a cash-strapped family?

Homeownership policy is broken. Housing policy is broken. Our economy is broken. Nothing screams this more than late capitalism’s calculated lunge towards single-family homes, the final pillar of the American Dream. Wall Street and the investor class get how broken our economy is and respond by exploiting it. And they aren’t even pretending to care about optics:

‘“The American dream no longer includes homeownership,” said Jordan Kavana, chief executive of Transcendent Investment Management LLC, a south Florida firm that has been a big acquirer of rental homes. “You will earn your equity in other ways, not your home.”’

I’m not sure where Mr. Kavana assumes this new source of equity will come from, but given that few Americans own stock and most draw their wealth from their homes, the options appear to be limited. But that’s your problem.

The new, frightening (and baffling) development is that many of these cash-rich entities are building new housing expressly for foreign owners — expressly as rental/investment properties. Mr. Kavana goes on to say that these investors “Get that this [homeownership] is the lynchpin of the American economy.”

The paradox of identifying (correctly) that homeownership is the lynchpin of the economy while actively subverting it goes unaddressed in this article, but it gets to the core of this market play. 

These institutions know that the game is up for most Americans. They know that many young Americans can’t (and won’t) afford to buy homes and many baby boomers will eventually be forced to sell. They know that special interests have frozen any ability to politically address the structural deficiencies in housing policy or for that matter the American economy. They know that at best politicians from both parties are going to pound their chests about homeownership, perhaps offer some empty new incentives around the margins, declare victory, and move on. They know that they can continue to reap the rewards of homeownership subsides while sitting on ever-increasing housing prices as the housing crisis grinds on.

They know that this is a cash cow for their shareholders and will be for a long time.

We should all be sounding the alarm at this outrage. It’s outrageous on the face of it as this new normal goes against everything that 80 years of bi-partisan domestic policy was created to foster (as flawed and racist as it was), but its even more outrageous given that we are only 10 years removed from the damage caused from the Great Recession — damage caused by many of these same actors under these same structural realities in housing. For many Americans, my generation included, we will never recover from it.

The Great Recession may have ultimately been triggered by the exotic and fraudulent nature of mortgage-backed securities, but it really happened because people couldn’t afford their homes.

That is even more true today: household debt is $13.2 trillion, which is half a trillion dollars higher than the previous record set in 2008. Real wages for the majority of Americans have barely moved in forty years. Wealth inequality has skyrocketed over that same period. Generational wealth passed though home equity is the only path for most first-time homebuyers, furthering racial and demographic wealth gaps.

What happens when the next downturn comes? Sure, it may actually benefit some families who don’t own their homes — these institutions can in theory weather it better than individual homeowners (or get bailed out before a homeowner would). They could lower rents to keep some cash coming in. In turn that could give families more flexibility and mobility. But somehow I don’t think the average American family will be that much better prepared than last time.

Housing policy rarely gets the attention it deserves, which is maddening and disheartening. There are certainly many fires and leaks spreading across the land, but it all starts with home. If our entire economy and political structure is built on the fundamental concept that you will own a home, then we are entering unchartered water if that stops being the case. There could be benefits for our economy moving away from homeownership, but simply turning it over to hedge funds and foreign investors could further destabilize our fragmented country while only benefiting a tiny sliver of the super-wealthy.

The investor class has taken nearly all of the wealth created over the last 30 years and gotten away with it. Now it’s coming for our homes and appears to be getting away with that too. If we lived in a healthier political climate with a clear moral north star, this would be met with bi-partisan condemnation. But if we’ve learned anything about late capitalism, it’s that no one is coming to save us. We must do it on our own.