Housing squeeze accelerated by investment companies buying up properties
Purchasing a home is usually the only
pathway for the working class to accumulate a bit of wealth. Today,
working-class home-buying is increasingly out of reach. Housing rent inflation
also remains stubbornly high, further squeezing working people, as well as
causing the Federal Reserve to fret about
why inflation isn’t falling faster.
While economists hunt for technical
explanations, they ignore the ways in which Wall Street has come to dominate
the housing market to the detriment of working people. The real story is about
how our two major political parties have sold out to financialized capitalism.
In 2008 Wall Street crashed the housing market, by profiting wildly from unregulated artificial mortgage-backed bonds. When that house of cards collapsed, they were bailed out with our tax dollars.
Then, Wall Street rushed in to buy up housing assets on the cheap, turning them
into rentals and profiting yet again from the very mess it had created. And now
the working class is being squeezed out of the homeowner market and paying more
and more for rentals.
It wasn’t always this way. Following the crash of 1929, caused by massive financial malfeasance, the New Deal ushered in a strong regulatory regime to control the inherent greed of the banking and securities businesses. For 25 years after those stiff regulations went into effect, the standard of living for the working class steadily increased and there were no Wall Street implosions.
Those regulations held until the Reagan and
Clinton administrations removed many of the guard rails intended to constrain
the ability of financiers to manipulate and threaten our economy. Financial
recklessness and greed once again were given free rein. By 2008, Wall Street
had thoroughly crashed the economy, leading to six million jobs lost in a
matter of months.
I gave the crash a good look in my book, The Looting of America. The machinations of Wall Street in the early part of this century involving the housing market were beyond belief.
Freed from all serious oversight, large
banks and financial firms believed they had engineered a financial miracle –
taking all the risk out of high-risk mortgages. They created artificial
investment products that the trusted credit rating agencies assured us were as
good as gold. Rated AAA, they said.
Sub-prime mortgage-backed securities, built
repeatedly upon the same risky mortgages, promised big safe profits, and sold
like hot cakes. When those risky mortgages inevitably failed, so did the
supposedly safe securities, and the whole system crumbled.
Incredibly, at the same time, some of the
richest Wall Streeters created financial products designed to fail, so that
they could bet against them. They made billions!
This is the type of garbage that led to the
1929 crash and the Great Depression. In 2008 it was called the Great Recession.
Economic devastation, fueled by unregulated banks and securities firms,
happened again.
Bailouts for Wall Street, Pitchforks for
Main Street
The damage done was so great that the government used taxpayer money to bail out the financial bandits, fearing that if they didn’t the whole economy would collapse into another Great Depression. None of the financial criminals went to jail. Very few suffered serious financial harm.
But with the collapse of the housing market millions of
homeowners were left with underwater mortgages. The only bailout for them was
bankruptcy and ruination.
The country was angry, and this disaster
created the perfect opportunity to reregulate Wall Street so that it served the
American people, not the other way around.
President Obama, in 2009, understood the
public fury aimed at the high salaries that the financial titans had the gall
to award themselves even as they were accepting taxpayer support. The CEOs
argued that they still needed to pay top dollar for executives during the
bailout because, “We’re competing for talent on an international market.”
Obama warned, “Be
careful how you make those statements, gentlemen. The public isn’t buying it.”
Then he made a telling concession: “My administration is the only thing between
you and the pitchforks.”
Obama never channeled the popular anger to
bring Wall Street to heel. Instead, that fury energized the Tea Party, which
turned the attacks away from Wall Street and towards the government itself.
That was the fury Trump rode to power.
Meanwhile, the banks grew larger, richer,
and more concentrated than ever. Today the top five banks own more banking assets
they had before the 2008 crash. More worrisome yet is that hedge funds and
private equity companies, which are far less regulated than banks, now hold
more than $25 trillion in assets,
making them larger than all of commercial banking.
What to do with all that money? Go after
the housing market again!
Due to Wall Street’s financial implosion
and the mortgage crisis, housing prices collapsed after the 2008 crash. Big
money institutions rushed in and bought up as much housing as possible. No
regulator, no political party, no movement stopped them from exploiting the
crisis Wall Street itself had created.
Smack in the middle of the financial crisis
in New York City, private equity companies had the chutzpah to buy thousands of
apartment buildings, hoping to jack up stabilized rents as soon as tenants
moved out.
To move things along, these new owners
applied a bit of pressure. “Tenants have been sued repeatedly for unpaid rent
that has already been received by the landlords; they have been sent false
notices of rent bills, lease terminations and non-renewals; and they have been
accused of illegal sublets,” reported Gretchen Morgenson in the New
York Times.
Now, after 15 years of Wall Street housing
purchases, regular home buyers are getting squeezed out of the market. About 20
percent of all home purchases in the third quarter of 2022 went to corporations
that owned more than 100 properties, with half of the Wall Street buyers owning
more than 1,000. If you need a mortgage to buy a home you are likely to lose
out to the big boys.
“They are, by definition, cash buyers. They
don’t have mortgages; they don’t have contingencies; they’ve got briefcases
full of cash, ready to go,” reports CoreLogic
data.
In the Bradfield Farms subdivision in
Charlotte, North Carolina, in 2021-22, fifty percent of the homes were bought
by investors with cash and turned into rentals, according to an investigation by
the New York Times. And we wonder why it’s so hard for young
working people to purchase a home.
There ought to be a law.
After fifteen years of abuse, politicians
are finally taking notice. Two Democratic legislators from North Carolina, Jeff
Jackson and Alma Adams, recently introduced the American Neighborhoods Protection
Act, which would require a corporate owner of more than 75
single-family homes to pay an annual $10,000 fee per home into a trust fund to
help family buyers with down-payments. But, in the divided Congress, this bill
isn’t going anywhere.
Why wasn’t it presented, one wonders, when
the Democrats were in full control? Maybe because if it was pushed forward,
Democrats would have to choose between placating Wall Street or defending
working-class homebuyers. Hmm, which way do you think they would go?
But we shouldn’t just be angry at the
politicians who have coddled Wall Street for 40 years in exchange for campaign
contributions (and lucrative financial jobs after leaving public office). We
need to look at ourselves and our collective organizations.
In 2008, Wall Street was on its knees
begging for support. The financial barons were at their weakest point since the
Great Depression. To extract serious financial reforms, we needed a mass
movement that united labor unions with the many community and environmental
groups around the country. It didn’t happen.
It is time to wake up to what Wall Street is doing to us. Not only did it crash the economy in 2008. Not only does it now control more and more of the housing market, but it is also destroying the lives of working people through mass layoffs.
As Wall Street gorges itself on
stock buybacks, (another result of deregulation in 1982), 30 million of us have
lost our jobs in mass layoffs, jobs often sacrificed as corporations pay for
those buybacks Wall Street demanded. (Please see Wall Street’s War on Workers for
more about this.)
Building a movement to stop Wall Street’s
insatiable greed starts with labor unions, like the United Auto Workers, that
have shown the willingness to take on corporate power, not only to protect
their own members, but also to enhance the working class as a whole.
A new movement could be built around
leaders like UAW president Shawn Fain, who recently said:
“Billionaires, in my opinion, don’t have a right to exist.”
That the anger and energy of indignation is
still out there, waiting to coalesce and aim at taming Wall Street’s insatiable
greed. We should join with Fain and other progressives to mobilize and harness
it now.
Sooner would be much better than waiting
for the next crash.
LES LEOPOLD is the executive director of the Labor Institute and author of the new
book, “Wall Street’s War
on Workers: How Mass Layoffs and Greed Are Destroying the Working Class and
What to Do About It." (2024). Read more of his work on his
substack here.