Housing, Rising Rents, and the Decline of the Middle Class

The end of every month is, for a data hound like me, my favorite part of the month.  Case Shiller home sale report, the National Association of Home Builders data around home-starts and permits pulled and the National Association of Realtors data on pending sales comes out.  These are the numbers that indicate where the housing market is and possibly where it’s going.  Important rental data can be found on sites like Zumper.com, a blog that posts what’s happening in rental markets nationwide.  The picture the combined data demonstrates is one of high cost to buy and high cost to rent.  Rising rents in particular are very concerning because high rents disproportionately affect lower income families.

Much has been made of rising interest rates and the slowdown of the housing market.  While it is true that the purchase market is slowing under the weight of the largest rate increases in history, soaring prices and the ever-increasing lack of affordability, housing prices are still holding up.  Sure, there are more price reductions and there was a decline month over month, but this can be attributed to the seasonality of late summer, back to school etc. and the fact that homes with negatives, ie: condition or location, are having to reduce to find a buyer.  This is how it’s supposed to be. These are signs of normal market behavior [Find us on social media here].  The reason prices aren’t dropping equally across the board is because there are still too many buyers for the inventory available.  If you question this, just take a trip to the mall and make note of how many babies, strollers, and pregnant women you see.  Millennials are starting families en masse and they are looking for homes to raise them in.  But inventory is not going up.  On the contrary, it’s peaked and is declining.  Regarding our local market of the Conejo Valley, inventory is down 10% since late July.  It’s pretty hard to have prices decline substantially when there are still more buyers than homes.

Wooden blocks with the word Rent, house and up arrow. The concept of the high cost of rent for an apartment or home. Interest rates are rising. Real estate market. Increased demand for rental propertyBack to rents; according to Zumper, rent on a 2 bedroom apartment in New York City, the most expensive market in the country, jumped year over year by an unconscionable 46.7%!  But they aren’t alone.  Nashville is up 26.7%; Boise 11%; Glendale, AZ 24.1%; Greensboro, NC 31.8%; Tulsa 23.3% – I could go on… it’s mind bending.  I just listed a 500 SF 2 bed/1 bath flat in the heart of the San Fernando Valley for $2,050/mo and have had no fewer than 60 inquiries.  This is not good.

The problem with high rent is that it keeps people from getting ahead, increases poverty, decreases disposable income and reduces the ability to save and stay out of debt.  In Los Angeles, rent takes on average more than 50% of people’s weekly paycheck.  We are becoming a nation of renters.  Where once the road to the middle class and self-sufficiency meant a driveway and a 3 bed/2 bath home.  Today, the road to the middle class is quickly become a fairy tale.  For without home ownership as a vehicle to build personal wealth, most Americans won’t have a chance.  Home ownership is and always has been, the clearest path to the middle class.

How did we get here?  You don’t have to look any farther back than the Great Recession to find the bulk of your answers.  We essentially stopped building new housing from 2008-2013.  As a result, we are way behind where we should be to house our people.  And if that weren’t troubling enough, consider what happened in 2012: Wall Street went into the single-family home landlord game.  When the market began showing signs that it had bounced off the bottom, lenders like Bank of America, inexplicably unloaded all their bad debt and foreclosed homes to hedge funds and REITS.  What’s even more galling is hedge funds like Blackstone and Invitation Homes as recently as 2017 received $1B in financing help to purchase an additional 48,000 single family homes, from none other than Fannie Mae, the government owned entity created specifically to help individuals achieve home ownership [See what your home is worth here].  Private equity firms like Blackstone, KKR, Apollo, Carlyle and REITS like Invitation Homes and American


For sale in Thousand Oaks!

Homes for Rent right here in Agoura Hills, now own more than 300,000 single family homes.  And while that is only .02% of the roughly 94 million single family homes, they also own a quarter million manufactured homes and over 1 million apartments.   But the numbers are even more disturbing because their ownership is not evenly spread out and instead concentrated in certain urban/suburban marketplaces.  According to Americans for Financial Reform, private equity firms own 1 in 9 single family homes in Charlotte, 1 in 10 in Tampa, 1 in 12 in Atlanta.  They also disproportionately target black owned neighborhoods where in 2021, 1 in 3 homes purchased in predominantly black zip codes went to institutional investors.  rentsSo defensive was Blackstone that in March of 2022, they posted a “Myth and Fact” page on their website disputing that they have a disproportionate influence and control over residential rents. With this kind of ownership concentration, is it any wonder buyers can’t find a home to buy?  Private equity has been on a buying spree and are even partnering with home builders and buying entire subdivisions for rentals.  That’s a whole ton of inventory that’s not for sale and a whole lot of rental property under the control of a very few.  Think they might be able to raise rents at a whim without difficulty?  You bet.  Just look at the graph above at how much they’ve raised rents since Q4 2020.  What’s even more crazy, is that all those private equity owned homes are occupied!  They aren’t just vacant.

What’s it all mean?  To my thinking it means we need to build more homes and do so fast.  Call it national security.  Call it national responsibility.  Call it what you will, but understand, without the ability to buy and hold real estate, the wealth gap in America is going to grow exponentially and rents are only going to continue to skyrocket.  It’s been said, that the role of government in a capitalistic society, is to control capitalism.  Capitalism by definition is win/profit at all costs. Profit without regard for society.  Don’t believe me?  Check your history books [Contact Tim here].  It was because of this that in the early 20th century, the Federal Government began clamping down on monopolies.

What to do?  Besides building, one solution to this issue would be to compel corporate home ownership to sell.  One way to do this would be to impose a tax on corporate home ownership linked to the number of homes one corporation can own.  Moreover, that tax would need to be progressive getting higher and higher as the number of units owned passes various thresholds.  Without the progressive tax element, corporations will just pass the tax on to – you guessed it – renters.  Think of it like a salary cap on professional sports teams: you can go over the cap but it’s going to cost you, big time.  None of this is in lock step with the American dream of home ownership and the national wealth that is created through that home ownership.  Neither is it consistent with the idea that success should be rewarded when someone like me proposes sweeping disincentive and crushing tax policy.  But something must be done.  We cannot dream of a land where the streets are paved in gold when, in fact, they are paved with rent checks.

About Tim Freund

Tim Freund has been a licensed real estate agent/broker since 1990. He spent 14 years as a new home sales rep, ran his own boutique resale brokerage for 5 years and is currently an Estates Director for Dilbeck Estates/Christie's International Estates in Westlake Village, Ca. Tim is a Certified Residential Specialist (CRS), an Accredited Buyer's Representative (ABR), a Corporate Mobilty Specialist (CMS) and a Senior Real Estate Specialist (SRES). Tim has successfully negotiated a loan modification for a client and has been a professional short sale negotiator. Tim sells along the Los Angeles and Ventura County lines, “from LA to Ventura..”. Tim has been married 31 years, has 2 children, is a native Californian and has been a resident of the Conejo Valley since 1991.
This entry was posted in Demographics, Economics, Home Buying, Market Conditions, Market Conditions, Real Estate, Real Estate Correction, Recession, rent, Rental Advice, Tax Reform, Thousand Oaks and tagged , , , , , , , , , , , , , , . Bookmark the permalink.

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