New York Times

Trump's Real Estate Taxes, the Supreme Court, and Climate Change Are All Related (That's a Good Thing)


It’s only been a week since the New York Times published an article about Trump’s prolific tax cheating with his father’s real estate fortune, but it’s fallen out of the news. That’s not surprising given the complexity of the story and the baked-in awareness that Donald Trump was/is not an honest businessman. It’s also nowhere near being the most important national story given the ugly Kavanaugh confirmation debacle and the dire UN climate change report. That doesn’t mean it isn’t important. In fact, all three stories are deeply related.

To put it broadly, without radically changing our real estate laws, we can not save our country from climate change and to change our laws that radically, they will need to pass through the Supreme Court eventually. 

As of today, both seem like a daunting if not impossible tasks. The Supreme Court is set up to spend the next generation turning us back to the 19th century. The entire conservative movement over the last 40 years has worked to empower a judicial philosophy that is openly hostile to popular democratic governance and legislative oversight of the economy. And they just locked in power for next 40. 

On top of that, real estate has long been one of the most privileged industries and asset classes in America. That makes it deeply small-c conservative and has given it a powerful set of tools and incentives to prevent major reform, whether on its tax policy, its relationship to political contributions, or its environmental impact. 

These interests have lots of lobbying power at the national level, but their true power is on the state and local levels. They block candidates and policy initiatives that are perceived to “threaten” property values and are the main barrier to reforming land-use policy around economic and environmental justice. Overcoming that structure is extremely challenging.

But before you despair, let’s consider why the Trump tax cheat story is so important: it offers a hack into changing all of this. 

To defeat President Trump or the Republican Party, we must defeat Real Estate Developer Donald Trump.

To quickly recap, the Times story poured over thousands of court and tax documents and spoke with hundreds of people associated with the Trump Organization and family to reveal three fundamental facts: 

  • Donald Trump didn’t build his real estate empire like he claims, he illegally inherited it from his father. 

  • Fred Trump, the father, built most of that empire through gaming the federal government for millions in tax subsidies. 

  • Father and son committed systemic tax fraud over decades that directly harmed tenants

All of this happened by aggressively exploiting the already favorable tax code that allows real estate developers to self-assess lower property values for tax purposes, to arbitrarily split management structures to hide profits while overcharging vendors and tenants, and to shield ownership through obscure legal entities to further dwindle tax liabilities. 

The bad news is that, at this stage, it seems likely that the Trump family has already gotten away with it (although New York is looking into it). Most (but definitely not all) of these moves are perfectly legal given how the real estate lobby has helped write the tax code at the local and federal level for decades. That’s true in every state.

This is largely because a tiny fraction of the population, like the Trump family, has an immense amount of the wealth generated over the last few decades and as a result has captured almost all of the political power. Real estate money is the foundation of this power structure and always has been. Who owns the land is the very basis of power in America, which both Republicans and Democrats have protected. 

When then-candidate Trump bragged about giving money to both parties, this is basically what he was bragging about. Almost every big real estate interest is like that. 

The Trump tax cheating story then is incredibly useful as a rallying cry for real estate reform because it is a shorthand to explain how damaging real estate law is in the US and it is also a roadmap for how to change it. 

That’s where the good news comes in: we are already starting to dismantle this power structure. 

In New York, the Democratic primary on Sept 13th saw a slate of progressive pro-tenant candidates defeat real-estate backed candidates, potentially shifting the balance of power in Albany for the first time in generations. Their victories were backed by a growing bottom-up coalition for universal rent control that has a real shot of removing the type of legal loopholes that the Trumps used to jack up rents and avoid taxes for decades.

If Democrats take the senate in Albany next month, there is a real chance that a once-in-a-generation reform movement can take hold in Albany. Universal rent control should start with issues related to rents of course, but it should expand to address all of the background mechanics of real estate tax law and political contributions that have fed this unjust system for decades. 

This coalition is gaining power as a popular response to the affordable housing crisis and has a real plan to address it. But just as importantly it is also helping people begin to see that the affordable housing crisis is part of a larger inequality crisis across our late capitalist society. The environmental destruction ravaging our planet is a logical outcome.

There are few, if any, states that aren’t subject to the toxic mix of shadowy real estate law and shadowy political contributions from real estate. Without removing their hold on power, we will never be able to make the changes we need to protect the environment in the long-term and protect the must vulnerable populations in the short-term. 

Even if that happens, the real estate interests profiting from this power structure will inevitably look to the Supreme Court to protect it. 

Anti-union, pro-voter suppression, and generally skeptical of the administrative state, the current court, now with Kavanaugh confirmed, looks set up to bail out “Big Real Estate” (or maybe the more Georgist “Big Land”?) But on closer look, they shouldn’t be so sure.

The Supreme Court famously does not have the power of the purse or the sword. It is a deliberative body that interprets laws, which is inherently a subjective process (which so-called “originalists” prove in action). It’s credibility as a separate, legitimate third branch of government has always rested on its popular support regardless of any rhetoric suggesting otherwise. It can get away with being out of step with the majority of people for only so long.

Senate Majority Leader Mitch McConnell doesn’t need to worry about that. Blocking Judge Merrick Garland and now jamming through Brett Kavanaugh has severely damaged the court’s image as a non-partisan institution, but Republicans will be rewarded by their donor class for it. (Their base may get some short-term victory on further restricting abortion access, but it will pale in comparison to the losses they suffer in the long-run from the conservative movement’s real priorities). 

Chief Justice Roberts does need to worry about the Court’s image. It’s one thing to strike down EPA restrictions on (flimsy) grounds of federal overreach, but it’s entirely another to strike down direct laws passed by state legislatures. There is at least some evidence that Chief Justice Roberts understands that blindly delivering partisan victories for conservatives is bad for the health of the court, and, perhaps generously, for the country. Overturning popularly supported state laws even if they are counter to prevailing a la carte conservative judicial theory seems unlikely. There is hope, at least.

But even getting in front of the Supreme Court starts with getting laws passed at the state level. That will take building broad coalitions across and within states that agree on a narrow set of legislative priorities that can get them passed. 

I believe that real estate reform is the perfect issue to kindle the formation of these coalitions. The power of developers and landowners over our politics has crippled our democracy, long before its crippled our ability to face climate change. There are immediate and well-defined legislative goals that can be achieved to break that structure. 

The progress made on electing candidates in the New York Senate that support universal rent control is a great start. There is much to be done from there. But if we can create a model for passing progressive laws on real estate reform, we can do so for climate change. 

It starts with telling a simple story to as many people as possible. We have one now. Showing how Real Estate Developer Trump has harmed New Yorkers both as a landlord and a political contributor is a powerful way to start dismantling the system that created President Trump, the plutocrat supporting, climate-change denier. 

(market watch/ getty images)

(market watch/ getty images)

Public housing works, it can help the housing crisis, but The New York Times isn't helping

This Richmond Barthe sculpture near the Johnson Houses contrasts the image of intended residents (white families) with the current racially diverse demographics of NYCHA residents, which is part of why support for public housing has vanished. That must change. (homebodynetwork)

This Richmond Barthe sculpture near the Johnson Houses contrasts the image of intended residents (white families) with the current racially diverse demographics of NYCHA residents, which is part of why support for public housing has vanished. That must change. (homebodynetwork)

Over the weekend, the New York Times came oh-so-close to writing a fair, nuanced story about NYCHA. Most of the time, the paper of record ignores the 80-year old agency, the 2,500 buildings it manages, and the 400,000 New Yorkers who live there. When the paper does write about it, it is almost always in the context of failure, scandal, and waste. There’s plenty of that to go around, which is fair game, but there are many other positive facets of the agency’s story that remain, at best, alluded to while the core problem fueling these issues — federal abandonment — is only referred to passively.

The paper’s approach to public housing does a disservice to NYCHA residents and the agency, but it also does a disservice to public housing in the US in general. The simple truth is that public housing works and should play a larger role in solving the affordable housing crisis. In order to leverage public housing’s vast potential, we must first change how we talk about it.

I find this particularly frustrating because at the same time, there are elements within the Times that are (slowly) changing the conversation around housing. It published Matthew Desmond’s work on how the federal government spends $134 billion a year subsidizing $1million dollar homes across the country. Emily Badger and Quoctrung Bui wrote a devastating series on the eviction machine in much of America.

These provide important context to the affordable housing crisis, but public housing never seems to get that same coverage. The paper certainly doesn’t put all of these elements together to show why public housing (and other models like community land trusts) need to be part of the solution.

The problem with the Times coverage on public housing can be captured almost entirely in the title: “After Years of Neglect*, City Public Housing Is Poised to Get US Oversight.” Two problems jump right out.

(*The online edition appears to have replaced “Neglect” with “Disinvestment” after I started writing this. The print edition’s title is “US is Expected to Get Oversight of City Housing”. In either case, the problems remain obvious.)

First, it is bizarre to refer to impending federal oversight of a domestic government agency as “US oversight.” This might strike you as nitpicking — and I’m not blaming writers for editor’s decisions — but this falls into the much longer problematic history of how the Times (and the media at-large) adopts colonialist language when writing about housing in the US. Think of every real estate section story about mostly white “urban pioneers” moving to neighborhoods that…have been lived in by (mostly non-white) New Yorkers for decades.

Framing the built environment like this completely warps the public discourse around housing, specifically on gentrification and displacement. These are complex topics with significant policy trade-offs, but we aren’t presented with equally-weighted narratives to consider them responsibly.

This may be because the press, at any given level in an organization, is uninterested, only partially informed, or even ideologically opposed to public housing (its hard to see how corporate media would be inclined to support it). As much as the press gets labeled “left wing” or accused of having a “liberal bias,” public housing is a good example of that simply not being the case.

So much of the media adopts a real estate-centric language that the public conversation has already been shaped to internalize the virtues of market outcomes exclusively. (This is also true because poverty barely gets written about in the press. And that’s because poor and/or minority writers are absent from pressrooms.)

When minority communities speak about feeling like they live in occupied territory, particularly in the context of excessive-force by the police, this type of real-estate centric language is also what they are referring to. It either erases existing communities or otherwise “others” them into feeling like they are part of some imperial conquest that views them as an inconvenience. This language has real world impact and the Times should know better by now.

It should also be noted that no NYCHA residents were interviewed for the article. It quotes Ritchie Torres, the councilmember from District 15 in the Bronx and chair of the committee that oversees NYCHA, who grew up in public housing. Not for nothing, he suggested, correctly, that NYCHA should sue the federal government for neglect.

That brings us to the second problem with the title — where is the blame for neglect placed? And what neglect is actually being referenced? Just reading the headline makes it seem that the city is to blame. Even within the article, it largely frames the neglect as failures of the agency. That. Isn’t. True. For all of the many flaws that NYCHA is guilty of, they are not guilty of neglect (nor is the city.) They are obviously trying to manage their buildings. But they are doing so under untenable and inexcusable circumstances.

The true neglect, as Councilmember Torres pointed out, comes from the federal government. The federal government helped fund the creation of NYCHA and public housing for the first 30 years of its existence but (as it became less-white) subsequently abandoned it and demonized it (and its residents).

In NYCHA’s case, since 2001, the federal government has cut an estimated $3 billion in operational funding. This is a catastrophic loss. Out of NYCHA’s $3 billion annual operating budget, almost 2/3 comes from the the federal government, either from direct federal budget support (29%) or Section 8 subsidies (30%). These are existential cuts that compound quickly across such a large and old system. When the premise of public housing is based on continued federal funding, it doesn’t work when that funding dries up. Pretty simple.

The article dutifully mentions these cuts but frames it as background on the agencies’ problems rather than central to them. While the failures of NYCHA are presented as direct fact from the writer, the funding cuts are presented as “city estimates” and even the issue of racial prejudice is mentioned in a quote by a professor. Those are apparently not facts. This may be unintentional (the Times and much of the media generally shies away from calling something “racist” or “a lie”) but it means the narrative of this story (like every other NYHCA story) misses the more salient point.

The real story is the federal government slowly abandoning thousands of Americans. Adding in the fact that these Americans generally aren’t white deepens the scandal, but not much more.

Just as problematically, this narrative absolves the federal government from responsibility for fixing NYCHA and presents the only real solution implicitly or explicitly as privatization. That’s been the editorial board’s position for some time.

This article, despite its detailed analysis, is no different. It mentions the city and state squabbling over increased funding but also says (accurately) that neither can fill the gap in funding. It discusses some of the public/private options being explored (which also won’t cover the gap) but doesn’t entertain the idea that the federal government could return to previous funding levels, let alone why it should. What is the solution other than the slow death of public housing?

It matters when no one at the paper of record is explicitly defending the idea of public housing. It’s not a reporter’s job, but they should at least be covering the many people who are. Ignoring the argument for it robs the public of the full housing policy landscape.

It matters further because most Americans, including many well-meaning liberals and even housing advocates, are guilty of holding decades of media-fueled negative stereotypes of public housing that harm residents and harm our prospects of solving the housing crisis: Public housing equates to scary looking, crumbling brick towers by the highway. Crime and rodent invested buildings. Poor and lazy minorities. A well-meaning but failed experiment from another age. A poorly run government program that should be privatized. But these images are bullshit.

There’s a more accurate way to think about public housing’s legacy and future. A civic treasure that has provided affordable homes for 80 years. A collection of buildings that have held up remarkably well and just need proper maintenance. A refuge for a population that the government and the market has otherwise ignored or exploited. A well-meaning but failed promise that should be renewed. A solution to a failed market that will always fail to provide enough housing. A vision for a more equitable republic.

The biggest tragedy of NYCHA’s recent history — which has included federal investigations for fraudulent lead inspections, boiler failures in the dead of winter, the slow selloff of assets, the unfortunate resignation of its Chairperson, Sholya Olatoye (who wasn’t exactly set up to succeed), and now a cynical state takeover — is that its viewed as a failure at all.

Its frankly remarkable that NYCHA is standing with such gaps in funding, indifference from the public, and flagrant neglect from the federal government. In a city where there are over 60,000 homeless and the average rent in Manhattan is over $4,000, the average rent in NYCHA is $509. That’s incredible. NYCHA is a success story. (The article points out that NYCHA is a “relative success” compared to other housing authorities.)

The truth is that NYCHA has been a victim. One that is as resilient as it is flawed. It has been a victim of federal neglect but it is also a victim of terrible federal policy, which is why the affordable housing crisis exists and persists. Without making the story about the federal government failing in its responsibility to fund public housing (while giving away billions of tax dollars to wealthy homeowners) nothing will improve for public housing or for the housing crisis.

Housing advocates should place more effort on making the case that public housing works and call out the media for lazy tropes that keep it off the political agenda. Even more importantly, they should help the already highly organized tenants groups within NYCHA have the reach they deserve to improve their homes.

Finally, we should all outline what public housing could look like in the 21st century if we force the federal government to return to its basic responsibility. We should then make the case that a reboot of public housing can help Americans all over the country have secure affordable housing.

The real estate section shouldn’t be the only place the average American reads about housing issues. And failures shouldn’t be the only thing they read about public housing. As the paper of record, the Times must do better.

NY Times (as usual) Misses Real "Bomb" in Story on NYCHA Heat Failure

Shola Olatoye visiting an emergency command center at Patterson Houses in Mott Haven (facebook/nycha)

Shola Olatoye visiting an emergency command center at Patterson Houses in Mott Haven (facebook/nycha)

As the Bomb Cyclone continues to squat on much of the Northeast, bone-chilling temperatures have made being outside highly dangerous. Unfortunately, for too many NYCHA residents, it has also been dangerous inside. According to the New York Times, the heating systems in at least 35 buildings (out of 2,462) have failed leaving as many as 15,000 residents without heat at some point during the week leading up to and during the storm.

Though NYCHA has set up Warming Centers for residents and appears to be restoring heat in a methodical manner, the Times (as usual) ignores the larger story: The funding bomb dropped by the federal government on NYCHA.

I don’t want to excuse NYCHA management. It is unacceptable not to provide heat for residents. It’s fair to suspect human and system error (and even negligence) somewhere on the tactical level be it in inspecting, reporting, or communication.

NYCHA has had a history of mismanagement (though it doesn’t get enough credit for a vastly improved operation in recent years) and, most recently, it lied about federal lead inspections. This scandal does not get Chair Shola Olatoye or NYCHA leadership much sympathy this time around.

That being said, the article demonstrates a larger problem with how the media covers public housing by ignoring the larger landscape NYCHA exists in and by consciously or subconsciously projecting ideological bias against it.

The Dickensian narrative of public housing

First of all, the media rarely covers public housing. For every dubious or class-blind trend piece the Times publishes on real estate, it only focuses on NYCHA when something goes really wrong.

I include “really” because a lot goes wrong with NYCHA on a daily basis. But because these are generally chronic problems facing poor people, the media ignores them. (Crime-related stories of course get plenty of coverage.)

NYCHA is the largest and oldest public housing authority in the country and serves over 400,000 residents in 178,000 units across 2,462 buildings. Of course being that big and old means having a lot of problems. Perhaps the biggest problem is the estimated $17 billion capital shortfall that leaves much of its infrastructure in dire condition (and susceptible to private appropriation, but more on that later.)

While the media ignores the chronic problems facing public housing, it feasts on acute events like the heat failure. As a result, the only time public housing is on the public radar, it is presented as a Dickensian hellhole run by at best helpless or at worst negligent public employees populated by equally helpless poor people.

The heat failure is an important story and I don’t want to appear to downplay the suffering of residents during a historically cold storm, but is an issue in basically 1% of NYCHA buildings a sign of massive systemic collapse?

Not only does this narrative rob NYHCA employees and residents of their agency, it also completely obscures the source of these problems: the federal government, which has abandoned public housing and its residents.

The federal government has cut off over $1 billion dollars of operating support for NYCHA over the last decade as well as $300 million in capital support. The Trump Administration is also attempting to cut another $300 million this year. NYCHA gets 2/3s of its $3.2 billion annual operating budget from the federal government. It is a testament to the agency that it has survived this assault at all.

I don’t understand how any reporter could write about the problems facing NYCHA and not frame it through this information, which explains many of them. The article only vaguely references this funding collapse through a single quote from Public Advocate Letitia James. That’s an unacceptable oversight.

And the ideological contempt underneath it

Part of the explanation, no doubt, lies in an ideological bias against public housing that much of the media landscape is guilty of consciously or subconsciously. This bias comes at least in part from the basic economics of the media industry.

There is a fascinating history of real estate developers creating, owning, or buying local news outlets to further their interests. The playbook has been to concern troll about homelessness, crime, and radical activism to provide public cover for the state (the police, mostly, but also zoning) to pacify neighborhoods in order to take control and redevelop. For a contemporary example, Jared Kushner bought the New York Observer in 2006 and the paper subsequently started bashing homelessness in Tompkins Square Park in the East Village where his family owns 40% of the housing stock.

A more benign but no less compromising factor is the reliance that many media outlets have on real estate advertising. Historically, real estate listingsand classified ads were a major source of revenue for local newspapers. The latter has collapsed, but the former has increased in importance. Both the Times and the Wall Street Journal have put greater emphasis on digital real estate ads and digital real estate products.

To be clear, I’m not suggesting there’s a conspiracy or underhandedness against public housing by the media or the Times specifically. But the media’s basic business model gives it no incentive to support public housing practically or philosophically.

Whether it’s trying to sell ads about real estate or luxury cars, the Times in particular is seeking an affluent audience that high-dollar advertisers crave. That affluent audience either doesn’t care about public housing or actively opposes it. It’s impossible to ignore that this basic logic informs the operation of the paper, from what writers get hired, to what stories get pursued and published.

This ideological bias also informs how NYCHA’s funding shortfalls are presented when they are written about. I mentioned earlier that NYCHA faces a $17 billion capital funding gap. Making the case for increased federal funding is never seriously considered in the media. Instead, the only viable solution presented is public private partnerships, which many advocates fear is just a dress rehearsal for future privatization (it is.)

Framing this issue so narrowly limits the ability for the public to consider alternative options or to even know that they exist (they do.) It also handicaps progressive elected officials, empowers conservative ones, and lets most of them off the hook entirely.

What we as the public are left with is a woefully incomplete view of the problems facing public housing and a suspiciously uncritical view of why those problems exist. This allows a deeply flawed narrative about public housing to dominate public perception and to frame policy discussions.

Just as critically, we are never shown why public housing exists, why it is a public good worthy of our support, and how successful it has been. There are just as many stories about the amazing things NYCHA does as an organization (especially given its funding restraints) and just as many amazing stories about NYCHA residents that tell a more complete story of public housing in the US.

Right now, too many NYCHA residents are cold. We must hold NYCHA accountable to fix this as soon as possible. But we must hold ourselves accountable too. We can’t allow the media to ignore the larger ‘silent bombs’ of poverty, sickness, and economic isolation that plague many NYCHA residents — any many other New Yorkers– everyday.

The New York Times Doesn't Get the Housing Market

Wait, seriously? (newyorktimes)

Wait, seriously? (newyorktimes)

This week the New York Times published an article about how the national housing market “finally looks healthy” that was at best misleading and at worst irresponsible (it was also lazily edited).  The writer bases his argument on a joint release from the US Census and HUD that shows an increase in housing sales of 12% over last month and 31% over the same month last year.  On the surface, this could be a positive sign that the housing market is returning to ‘health’, but once you dig into the numbers, the picture is more complicated.  In fact, if this writer stepped back and examined the broader context of the economy, it would be hard to argue that we have a healthy market at all. This reveals a larger problem about how the media talks about the housing market and what it hasn’t learned from the 2008 crash.

Let’s start with the data from the joint report.  Though the article does point out that this data has a wide margin of error and is volatile, it still proceeds to use it as the core of the argument.  The problem is, this data does have a wide margin of error and is incredibly volatile because it’s based on a quick sample turnaround. You only need to look at the previous month’s release (June 2016) to see the difference in the July report’s revised totals.  They lowered the June numbers by 10,000 homes.   The report itself is clear about expectations and explains its methods and possible errors.  It also makes it clear that it takes a quarter to get an accurate sense of the trends within the market.  You can quibble with how different the data ends up being from what is currently reported, but the point is, this is a thin piece of evidence to base an entire argument on. 

Now, let’s just assume that the data is more or less accurate. We are still left with a more complicated picture than the article suggests, particularly when trying to compare the differences among regions.  Though the numbers are broken down into 4 regions, the raw numbers don’t show how wildly different the housing market is, even in certain parts of the same region.  For example, prices and availability for housing in and near NYC remain a competitive death-match while parts of Connecticut less than an hour from New York are struggling.   Does that mean the housing market is healthy?

The reality is that economic growth is happening in an increasingly smaller number of cities (and it’s almost exclusively cities) in certain pockets of the country that also have extremely expensive housing markets.  This is because of a limit in the supply of housing in these markets relative to the demand, whether as a result of geographical or political limitations. In either case, this situation is making it harder for middle class workers, let alone poorer workers, to be able to locate in these hot job markets. Hot job markets should create a housing boom, but that’s not what’s happening and it’s hurting our productivity as a nation.  That’s not the sign of a healthy housing market.  

This article also somehow neglects to mention (which is surprising given that the Times has covered this issue in another section recently) who is buying up a lot of these houses in certain market segments.  The entry of private equity firms into the housing market has been a quiet, powerful force building over the last 10 years.  Though the number of houses under control by private equity on a national level is relatively minor, the concentration of their portfolios in certain markets has had a huge impact on the perception of the housing market as a whole.  In many cases, they are buying up homes for straight cash.  They then rent them until the market reaches a certain point to flip them.  This speculation is perfectly legal, but it distorts the actual activity of house sales.

Also unaccountably left unsaid is the question over the financial health of the housing market.  No, another crash is not just around the corner, but the continuing receivership of Freddie Mac and Fannie Mae (who collectively back over 60% of US mortgages) has left the previous crash in an unresolved, frozen state.  Though many of the excesses that led to the crisis have been removed, the flawed assumptions underlying the housing market – that homeownership is a good political policy, that the government should support it as an economic policy - remain in place.  The fact that this policy costs taxpayers $150 billion a year while still failing to provide adequate housing for millions of Americans should challenge the assertion that this is a healthy market.  It’s not even a true market.

It is a mystery how the same paper that has addressed all of these issues at various times could allow an article to be published that breezes passed them all.  Maybe it’s just laziness or someone having an off-day, but it could also be someone pushing a narrative in search of story.   The media primarily talks about the housing market as an economic trend.  In doing so, it internalizes the assumptions of people who profit from the housing market regardless of how that process impacts the larger society and economy.  The housing market looked healthy, even robust, in the lead up to the 2008 crash, but underneath the sales numbers were real problems with earnings, financial instruments, and exploitation that went underreported until it was too late.  It is stunning and ultimately disappointing to see the Times revert back to this laziness and water-carrying.

It’s easy to cherry pick data from a report or to draw phantom conclusions from it, but it’s more important to report the full context of an issue to readers.  The housing market is not healthy.  Arguably it has never been healthy.  Trying to present it that way does a terrible disservice to the people that are suffering from it and to the people that are trying to solve it.

Meet Your New Landlord, America: Wall Street

What mortgage crisis? (NYT via RealtyTrac)

What mortgage crisis? (NYT via RealtyTrac)

The New York Times has been running a series about the quietly dominant role private equity firms have started to play in many aspects of our lives - from responding to 911 calls to writing local laws - but this week it finally addressed what I think these firms are having the biggest impact on: buying and renting homes.  I've written a number of blogs about how the mortgage crisis never really ended and that is partly because private equity firms swarmed the housing market as banks retreated after the 2008 crash. Despite putting billions of dollars into housing, these firms have only masked the crisis and have not solved it by any means.

Over the past 6 years alone, a small handful of private equity firms have bought up over 500,000 homes across the country while avoiding regulations that banks were subject to which were intended to prevent foreclosures.  As a result, instead of fundamentally addressing the structural causes of the foreclosure crisis, we have in many ways maintained the same problem with fewer policy tools at hand to address them.

I won't rehash all of the details of the 2008 crash here, but want to point out that an estimated 10 million Americans lost their homes during the crisis, representing the single largest collective migration of Americans in history.  

The basic formula for the crisis, as I've seen it, had three pillars:

1. Unfounded societal preference for homeownership.  

2. Excessive governmental support for homeownership.  

3. Reckless financial exploitation of homeownership. 

You simply can't create such a devastating, slow-moving event like the 2008 crash without indicting everyone.  We've crafted the American Dream to include a house and a green backyard as opposed to an apartment and a public park. We've created 80 years of laws to subsidize homeownership for some while excluding most minorities. And we've actively or passively encouraged financial practices that range from unethical to illegal. So the next time you hear someone say "Well, that person should have known they couldn't afford a $600,000 house," remember that everyone was telling that person that they could and should. The deck was thoroughly stacked against them.

When the crash occurred, millions of homeowners were defaulting on mortgage payments and the institutions backing those mortgages came under considerable financial pressure, particularly Freddie Mac and Fannie Mae, the federally-sponsored private companies that back most private home mortgages in the country.  As I've previously discussed, there is an ongoing debate about how much trouble Freddie and Fannie were actually in, but the Bush Administration and then the Obama Administration balked at pressure from financial leaders to deem the companies at-risk and took them over, infusing them with nearly $500 billion in tax dollars. 

At this point, the US Government had several options to solve the crisis. They could 'bail out' the financial institutions providing liquidity for the mortgage market and hope that the market self-corrects; they could 'bail out' homeowners and reduce principal payments on individual mortgages relieving millions of Americans of the risk of losing their homes; and they could prosecute rouge actors in the market and further regulate how banks provide mortgages to homeowners. They could also begin to address the underlying economic and cultural conditions that led to the crisis in the first place.

Technically, the US Government has done the first three, but realistically the main trust of the government's intervention, the Troubled Asset Relief Program (TARP), bailed out financial institutions and ignored homeowners and bad actors. Of that $500b I mentioned earlier, only a small portion went to actual homeowners, resulting in only about 1.2 million who received even modest principal reduction on their mortgages.  As for sending people to jail, only some of the smaller, egregious actors in the market were prosecuted while major banks such as Wells Fargo and Bank of America escaped with slap-wrist fines.  And finally, there wasn't much discussion about root causes of the crisis or what broader policies could be created to address them.

Ironically, it was some of the regulations introduced during this period, and further flushed out in Dodd-Frank, that caused banks to turn away from mortgages, leaving a vacuum for private equity firms. Whereas banks were required to seek out low-income homeowners and to resist foreclosures at all-costs, private equity firms do not face any such restrictions or mandates.  Why? Because banks borrow money from (and are accountable to) the government and private equity firms don't, relying instead on private investors. 

What is more troubling is the government's eagerness to work with private equity firms in the housing market despite not obtaining the same policy compromises from banks. Federal housing agencies have sold off over 100,000 homes with trouble mortgages to these firms in the last few years, often at steep discounts of 30%. If the US government valued low-income homeownership and averting foreclosures so much, you would think it would require similar concessions from private equity firms in order to get such good deals.

In theory, private equity firms buying these troubled mortgages have some positive effects.  By one count, 10% of mortgages sold to these firms were abandoned homes that were put back on the market.  This obviously is good news for some buyers and surrounding homeowners.  The billions of dollars put into the housing market have also stabilized housing prices nationally, certainly helping millions of other homeowners. This has dulled the overt signs of distress from the mortgage crisis.

In practice however, it appears that private equity firms are not having a completely positive impact on the communities they are operating in.  By most accounts, they are more likely to foreclose on residents than banks.  The NY Times found that one company, Lone Star, has foreclosed on 20% of the properties it has bought from the federal government and only restructured about 9%. This has proven especially true in certain markets that have rebounded faster than the country as a whole.  Parts of Florida and Ohio where these firms own homes have seen higher foreclosure rates than other states.  These firms are clearly clawing back and flipping houses that are recouping value quickly and sitting on ones that aren't until they do. They don't appear particularly concerned about the impact those decisions have on the residents and communities affected by them and, in their defense, they don't have to be.

Far from restoring the housing market, this type of massive speculation further warps it by encouraging more foreclosures that harm families and communities (often by massive conflicts of interests within these companies), removing housing stock in attractive markets from local buyers (or putting more pressure on prices), and by trapping people in false foreclosure proceedings through clerical errors due to amassing millions of mortgages in a short span of time. 

As many housing advocates, housing lawyers, and, increasingly, government officials are starting to notice, private equity firms are no better at handling the crisis than banks or government agencies and might be worse. They have not kept enough people in their homes. They only focus on markets that probably would have recovered anyway while ignoring potentially needier markets.  They are also only beholden to investors - and the returns on the bonds created by these assets have been keeping them happy.  (A further irony is that some of these investors are public pension funds that likely have members that are being affected by the crisis.) This is the best outcome we can hope for?

This is why I maintain that the mortgage crisis has never ended.  Those three basic housing pillars that led to it are still in place.  Unless we question and reassess all three of these pillars, we're just going to recreate the crisis over and over again.  We can't keep relying on exotic financial products to 'cure' the housing market whether they come from private equity firms or banks. We must create policies that create affordable housing in a variety of forms in a variety of places. We can't keep allowing the government to warp housing policy which gives away too much tax money while preventing too many Americans from actually finding a secure home.  We must steer federal policy towards housing as a right and not a wealth-vehicle. Finally, we can't keep clinging to the false notion that homeownership is the key to the American Dream. Perhaps it is for some Americans, but surly having a safe, affordable place to live whether you own it or rent it should be obtainable for all Americans.

Right now our public and private sectors are failing us all in housing.  We can keep punting on addressing the economic conditions that make it so difficult for Americans to afford a decent home on the one hand but make it so attractive for powerful financial institutions to exploit it on the other. We can keep papering over the dire conditions that many homeowners and renters are currently in hoping that the economy bails us out. Largely because of private equity firms stepping in as our nation's landlord, many of us have stopped worrying about it altogether. Recent history should make us wary of stopping there.