Tent Cities: Zillow study shows how Wall Street is causing homelessness while profiting from the harm

It seems that everywhere you look in America you see the tragedy of homelessness. Rarely, though, do we hear that Wall Street is helping cause it.

Thirty-two percent seems to be the magic threshold, according to new research funded by the real estate listing company Zillow. When neighborhoods hit rent rates in excess of 32 percent of neighborhood income, homelessness explodes. And we are seeing it play out right in front of us in cities across America because a handful of Wall Street billionaires want to make a killing.

Housing prices have gone out of control since my dad bought his house in 1957 when I was six years old. He got a Veteran’s Administration-subsidized loan and picked up the brand-new 3-bedroom ranch house my brothers and I grew up in, in suburban south Lansing, Michigan. It cost him $13,000, which was about twice what he made every year working a good union job in a tool-and-die shop.

When my dad bought his home in the 1950s the median price of a single-family house was around 2.2 times the median American family income. Today, the Fed says, the median house sells for $374,900 while the median American income is $35,805 — a ratio of more than ten-to-one between housing costs and annual income.

As the Zillow study notes:

“Across the country, the rent burden already exceeds the 32 percent [of median income] threshold in 100 of the 386 markets included in this analysis….”

And wherever housing prices become more than three times annual income, homelessness stalks like the grim reaper.

We are told that America’s cities have seen this increase in housing costs since the 1950s in some part because of the growing wealth and population of this country. There were, after all, 168 million people in the US the year my dad bought his house; today there are 330 million.

And it is true that we haven’t been building enough new housing, particularly low income housing, as 40 years of Reaganism have driven down wages and income for working class people relative to all of their expenses.

But that is not what has been uniquely driving housing prices into the stratosphere — and, as a consequence, the crisis in homelessness — over the past decade. You can thank speculation for much of that.

As the Zillow-funded study noted: “This research demonstrates that the homeless population climbs faster when rent affordability — the share of income people spend on rent — crosses certain thresholds. In many areas beyond those thresholds, even modest rent increases can push thousands more Americans into homelessness.”

So how did we get here?

It started with a wave of foreign buyers over the past 30 years (particularly from China, Canada, Mexico, India and Colombia) who, just last year, picked up over 154,000 homes as their way of parking money in America. As Marketwatch noted in a 2015 article titled “The Danger of Foreign Buyers Gobbling Up American Homes”:

“Unusual high appreciation of the aforementioned urban centers is due to the ever growing influx of foreign buyers — mostly wealthy Chinese — who view American residential real estate as the safest investment commodity. … According to a National Realtors Association survey, the Chinese spent $22 billion on U.S. housing in 12 months through March 2014…. [Other foreign buyers include primarily include] Canadians, British, Indians and Mexicans.”

But foreign investment has been down for the past few years; what’s taken over and is really driving home prices today are massive, multi-billion-dollar funds that sweep into neighborhoods and buy everything available, bidding against families and driving up housing prices.

As noted in a Wall Street Journal article titled “Meet Your New Landlord: Wall Street,” in just one suburb (Spring Hill) of Nashville, “In all of Spring Hill, four firms … own nearly 700 houses … [which] amounts to about 5% of all the houses in town.”

This is the tiniest tip of the iceberg.

“On the first Tuesday of each month,” noted the WSJ article about a similar phenomenon in Atlanta, investors “toted duffels stuffed with millions of dollars in cashier’s checks made out in various denominations so they wouldn’t have to interrupt their buying spree with trips to the bank…”

The same thing is happening in cities and suburbs all across America; the investment goliaths use fine-tuned computer algorithms to sniff out houses they can turn into rental properties, making over-market and unbeatable cash bids often within minutes of a house hitting the market.

After stripping neighborhoods of homes families can buy, they then begin raising rents as far as the market will bear.

In the Nashville suburb of Spring Hill, the vice-mayor, Bruce Hull, told the WSJ that people used to be able to rent “a three bedroom, two bath house for $1,000 a month.” Today, the WSJ noted, “The average rent for 148 single-family homes in Spring Hill owned by the big four [Wall Street investor] landlords was about $1,773 a month…”

Ryan Dezember, in his book Underwater: How Our American Dream of Homeownership Became a Nightmare, describes the story of a family trying to buy a home in Phoenix. Every time they entered a bid, they were outbid instantly, the price rising over and over, until finally the family’s father threw in the towel.

“Jacobs was bewildered,” writes Dezember. “Who was this aggressive bidder?”

Turns out it was Blackstone Group, now the world’s largest real estate investor. At the time they were buying $150 million worth of American houses every week, trying to spend over $10 billion. And that’s just a drop in the overall bucket. In 2018, corporations bought 1 out of every 10 homes sold in America, according to Dezember, noting that, “Between 2006 and 2016, when the homeownership rate fell to its lowest level in fifty years, the number of renters grew by about a quarter.”

This all really took off around a decade ago, when Morgan Stanley published a 2011 report titled “The Rentership Society,” arguing that snapping up houses and renting them back to people who otherwise would have wanted to buy them could be the newest and hottest investment opportunity for Wall Street’s billionaires and their funds.

Turns out, Morgan Stanley was right. Warren Buffett, KKR and The Carlyle Group have all jumped into residential real estate, along with hundreds of smaller investment groups, and the National Home Rental Council has emerged as the industry’s premiere lobbying group, working to block rent control legislation and other efforts to control the industry.

As John Husing, the owner of Economics and Politics Inc., told The Tennessean newspaper, “What you have are neighborhoods that are essentially unregulated apartment houses. It could be disastrous for the city.”

Meanwhile, as unionization levels here remain among the lowest in the developed world, Reagan’s ongoing war on working people continues to wipe out America’s families.

At the same time that housing prices, both to purchase and to rent, are being driven through the roof by foreign and Wall Street investors, a new survey published this month by NPR, the Robert Wood Johnson Foundation and the Harvard TH Chan School of Public Health found that American families are in crisis. Their study found:

“Thirty-eight percent (38%) of [all] households across the nation report facing serious financial problems in the past few months.
“There is a sharp income divide in serious financial problems, as 59% of those with annual incomes below $50,000 report facing serious financial problems in the past few months, compared with 18% of households with annual incomes of $50,000 or more.
“These serious financial problems are cited despite 67% of households reporting that in the past few months, they have received financial assistance from the government.
“Another significant problem for many U.S. households is losing their savings during the COVID-19 outbreak. Nineteen percent (19%) of U.S. households report losing all of their savings during the COVID-19 outbreak and not currently having any savings to fall back on.
“At the time the Centers for Disease Control and Prevention’s (CDC) eviction ban expired, 27% of renters nationally reported serious problems paying their rent in the past few months.”

These are not separate issues, and they are driving an explosion in homelessness. The Zillow study found:

“Communities where people spend more than 32 percent of their income on rent can expect a more rapid increase in homelessness.
“Income growth has not kept pace with rents, leading to an affordability crunch with cascading effects that, for people on the bottom economic rung, increases the risk of homelessness.
“The areas that are most vulnerable to rising rents, unaffordability and poverty hold 15 percent of the U.S. population — and 47 percent of people experiencing homelessness.”

The Zillow study makes grim reading and is worth checking out. In community after community, when rent prices exceed 32 percent of median home income, homeless explodes. It’s measurable, predictable, and is destroying what’s left of the American working class, particularly minorities.

The loss of affordable homes also locks otherwise middle class families out of the traditional way wealth is accumulated — through home ownership: over 61% of all American middle-income family wealth is their home’s equity. And as families are priced out of ownership and forced to rent, they become more vulnerable to homelessness.

Housing is one of the primary essentials of life. Nobody in America should be without it, and for society to work, housing costs must track incomes in a way that makes housing both available and affordable.

If ever there was a time to solve to this problem — and regulate corporate and foreign investment in American single-family housing — it is now.