5 Ways Corporate Power Is Wrecking Housing Markets
Monopolies will foil efforts to encourage lower prices with more construction.
This is Boondoggle, the newsletter about how corporations rip off our states, cities, and communities, and what we can do about it. If you’re not currently a subscriber, please click the green button below to sign up. Thanks!
A recent Gallup poll found that, for the first time in the pollster’s history, housing costs are the second-highest financial concern for Americans, coming in behind only the far more amorphous “cost of living/inflation” (which itself encompasses the cost of housing).
Indeed, a slew of state, “battleground,” and national polling shows housing rocketing to the top of the concern list, and there’s talk that housing and rent prices may influence the upcoming 2024 elections.
An interesting and consistent facet of the local polling is that respondents don’t believe one of the most favored and obvious solutions to the problem of high housing costs — building a lot more housing — will actually help them, even if it happens. As the Los Angeles Times put it: “A strong majority of Los Angeles voters support building more housing across the city but are skeptical that it will benefit them or ease cost pressures in their neighborhood.”
I think those folks are tapped into something important that is too often left out of housing policy discussions: The role that corporate consolidation has played in increasing costs, and its ability to foil even the best intentioned housing reformers. Just see this recent appearance of Federal Trade Commission Chair Lina Khan in Atlanta, where she was regaled with tales of corporate abuses in the housing market. Renters and homebuyers feel this in their communities, even if they don’t have the wonky words to describe it, and are ahead of policymakers in understanding what’s happening in their communities.
Below, I’ll explain the five areas in which this dynamic is most obvious, and how legislators and advocates can tackle it — because unless they do, I believe, supply solutions will be far less impactful than imagined.
Backing up, it’s certainly true that America has a massive housing shortage, on the order of millions of units. The so-called “Yimby” movement (which stands for “Yes, in my backyard,” as opposed to “Nimby,” or “Not in my backyard”) has done a good job in recent years of mainstreaming the idea that a surge in housing construction is necessary to bring down costs. Cities and states have passed new laws to eliminate single-family zoning, allow more varied backyard units, and provide more money to affordable housing, among many other steps.
And, yes, incumbent homeowners are often the largest hurdle to new construction — which isn’t a wild position to take in an economic system where a home is one of the only viable wealth-building assets to which most families will have access, by the way.
Still, corporate consolidation has the potential to foil even those places that surmount supply challenges if new supply is controlled by the same few who hold what already exists today. (I’m mostly — but not entirely — going to talk about rental markets here, but of course those have an effect on purchasing markets too, if potential buyers are less able to save for a purchase, delaying their move into homeownership, or if corporate pressure or favor leads to only certain kinds of housing getting built.)
OK, with all that out of the way, here are the five ways corporate power is wrecking housing markets.
Consolidation raises rents: The first and most obvious is that as more of the rental housing market is consolidated, rents go up. As I wrote here, a paper by researchers Jacob Linger, Hal Singer, and Ted Tatos shows that when corporate concentration in the housing sector goes up in a Census tract — i.e., more of the rental stock is controlled by a few corporate landlords — rents increase and there is more “rental inflation,” so rents go up at a faster pace. More housing being filtereted into these same, concentrated markets, controlled by the same players, will not result in the price decreases desired (in part because of what’s coming in the next section). As a remedy, state or local leaders can implement caps on the percentage of the market that can be held by any one firm.
Corporate landlords are (allegedly) fixing prices: Both private and public lawsuits have alleged that several corporations — most prominently one called RealPage — have conspired with landlords to fix rental prices. Landlords outsource their pricing decisions to these third-party entities that use algorithms to determine rent prices, placing a floor under the market and increasing prices above and beyond what the market would bear without collusion. The third-party price setters also recommend holding units vacant that would otherwise be filled at lower prices. Arizona’s attorney general alleged the effect of this price-fixing is rent increases of 12 to 13 percent. Obviously, if new housing is simply pulled into similar same price-fixing schemes, rents are not going to fall the way proponents of supply-side solutions hope. In addition to lawsuits, both state and federal lawmakers have proposed banning the use of third-party algorithms for determining rent prices.
Rental and mortgage markets are plagued by junk fees: Junk fees — those pernicious “service” and “convenience” charges that are undisclosed until the end of the transaction and correspond with no actual service or convenience — are everywhere, and housing is no exception. Renters are subjected to a miso-mash of random utility, service, and insurance fees, and in one instance even a “January fee” that paid for nothing but the turning of the calendar. These fees distort price competition and ultimately raise prices, and they are easier to impose in consolidated markets. The homebuying process is similarly plagued with random fees that no one understands, especially amid the flurry of paperwork and payments one faces at the end of the mortgage process, making a purchase even costlier than it already is in today’s high interest rate environment. Legislators in 13 states this year proposed wide-ranging bans on junk fees; California and Minnesota have such bans already signed into law.
Private equity is buying up single-family homes: There’s been increased attention recently focused on the fact that private equity firms and hedge funds are making inroads in single-family housing markets, buying up stock and turning those potential ownership opportunities into rentals. In some neighborhoods, up to one-fifth of the housing stock is owned by investors; the New York Times profiled a neighborhood in Charlotte, North Carolina, where investors bought half the homes that were put on the market in 2021 and 2022. The Wall Street Journal claimed that investors bought more than 25 percent of the available homes across the country in 2022. This hoovering up of available resources obviously clogs the housing chain, as renters or those who want a larger home can’t make a purchase competing against deep pocketed investors. If not reined in, this could ruin any attempts to add housing stock, since new building will simply be bought up by investors instead of individual purchasers, mitigating its impact. Many state and federal lawmakers have attempted to either ban the practice of institutional investment in single-family homes outright, limit the number of units a common owner can hold, or discourage such purchases though high taxation.
Big real estate developers probably receive the lion share’s of housing subsidies: As I’ve written before, real estate development is one of the most heavily subsidized activities across the economy. At the federal level, developers benefit from handouts and loopholes worth about $35 billion per year, or $350 billion over a 10-year budget window. States and cities have a mess of programs of their own, such as Baltimore’s Enterprise Zones, or Florida’s Community Redevelopment Act. And then there are state-federal mish-mash boondoggles, like the Opportunity Zone program. Many, if not most, of these programs, have “affordable housing” mandates that are woefully insufficient in terms of both the percentage of units that need to be set aside and the level of income a potential renter needs to be below in order to qualify. This is an area lacking research, but my belief based on watching this space for a long time is that most housing subsidy money goes to a small universe of players who, as I keep saying, are not going to lower rents if they are simply allowed to monopolize new construction, which they will be able to do if they monopolize the public money available to facilitate said construction.
The moral of my story, as I hope I’ve made clear, is this: By all means, build more housing. But address corporate consolidation and abuse at the same time, because without doing so, that building will not have the dramatic effect on prices proponents think it will, as monopolists will still control the supply and keep prices high.
SHAMELESS SELF-PROMOTION: I had an op-ed in The Hill over the weekend, co-authored with NYU’s Terri Gerstein, on why state legislators are looking at antitrust reform as one potential avenue for boosting worker power. Give it a read here.
Thanks for reading this edition of Boondoggle. If you liked it, please take a moment to click the little heart under the headline or below. And forward it to friends, family, or neighbors using the green buttons. Every click and share really helps.
If you don’t subscribe already and you’d like to sign up, just click below.
Thanks again!
— Pat Garofalo