Robert Reich: Getting Wall Street Out Of Our Houses – OpEd

Ask average Americans why they’re grumpy — why, for example, they don’t credit Joe Biden with a good economy — and lack of affordable housing comes high on the list. 

An important but little understood reason home prices and rents have skyrocketed across America — causing so many young people, in particular, to feel frustrated with the economy — is Wall Street’s takeover of a growing segment of the housing market. 

The biggest reason home prices and rents have soared in the U.S. is the lack of housing. Supply isn’t nearly meeting demand. 

But here’s the thing: Americans aren’t just bidding against other Americans for houses. They’re also bidding against Wall Street investors — who account for a large and growing share of home sales. 

Democrats in Congress are finally beginning to give this trend the attention it deserves. 

Let me explain. 

The Street’s appetite for housing began after the 2008 financial crisis, when many homes were in foreclosure — homeowners found they owed more on them than the homes were worth. As you recall, Wall Street created that crisis with excessive and risky lending, too often in the form of mortgages to people unable to pay them when they became due. 

When the crisis pushed the economy into deep recession and millions of Americans lost their jobs, many additional homeowners were unable to pay up. They, too, discovered that they owed more on their homes than their homes were then worth.

The Street became a double predator — first causing a housing bubble, which burst. Then buying up many of the remains at fire-sale prices, and selling or renting them for fat profits. 

The predation continues. America’s soaring demand for housing has made houses terrific investments — if you’ve got deep enough pockets to buy them. 

Partly as a result, homeownership — a cornerstone of generational wealth in the United States, and a big part of the American dream — is increasingly out of reach of a large and growing number of Americans, especially young people. 

All over America, hedge funds (in the form of corporations, partnerships, and real estate investment trusts that manage funds pooled from investors) have bought up modestly priced houses, frequently in neighborhoods with large Black and Latino populations, and converted the properties to rentals.

In one neighborhood in east Charlotte, North Carolina, Wall Street-backed investors bought half of the homes that sold in 2021 and 2022. On one block, all but one of the homes sold during these years went for cash to an investor that then rented it out.

By last March (the most recent data available), hedge funds accounted for 27 percent of all single-family home purchases in the United States. 

Now for some good news. 

Democrats have introduced a bill in both houses of Congress to ban hedge funds from buying and owning single-family homes in the United States.

It would require that these funds sell off all the single-family homes they own over a 10-year period and would eventually bar them from owning any single-family homes at all. 

During the decade-long phaseout, the bill would impose stiff tax penalties, with the proceeds reserved for down-payment assistance for individuals and families looking to buy homes from corporate owners.

If signed into law, the legislation could potentially increase the supply of single-family homes available to individual buyers — thereby making housing more affordable. 

I have no delusions that the bill will become law anytime soon. But along with many other pieces of legislation Democrats have introduced in this Congress, the bill provides a roadmap of where the country could be heading under the right leadership. 

So many Americans I meet these days are cynical about the country. I understand their cynicism. But cynicism can be a self-fulfilling prophesy if it means giving up the fight for a more equitable society. 

The captains of American industry and Wall Street would like nothing better than for the rest of us to give up that fight, so they can take it all. 

I say we keep fighting. This bill is one reason.

This article was published at Robert Reich’s Substack