SAN FRANCISCO (CN) — With a run on affordable homes across much of the West Coast, experts say investment firms may be influencing the housing market in hot markets like the San Francisco Bay Area. But they disagree on how much these investors are driving the severity of the statewide housing crisis.
One of the region’s most affected housing markets across the bay includes Berkeley, one of several California cities that let voters decide if officials should approve a vacancy tax to incentivize landlords to fill their housing units. The city’s leaders recently cited large investment firms as contributing to the local housing availability crisis through real estate speculation.
In a summer report to the Berkeley City Council, city officials said large financial companies like BlackRock are some of the largest real estate owners in the country and may have a detrimental influence on the Bay Area market. The report says private equity-backed landlords are 18% more likely than corporate landlords not backed by equity to evict tenants, “who are themselves more likely to do so than small landlords.”
“Redfin data shows that 13% of homes in Oakland were purchased by an institutional investor or business in the fourth quarter of 2021, a 16.9% increase over the year before. In San Francisco, 18% were acquired by institutional investors,” the report noted. “This follows a concerning nationwide trend where large institutional investors have since the beginning of the pandemic purchased an enormous number of homes; over 75% of these offers are in all cash, and many without any inspections, pricing prospective homeowners out of the real estate market.”
In Berkeley and likely other hot markets, some vacant units are in buildings “purchased for the sole purpose of accruing more wealth, with no intention of housing tenants," according to the report.
John Minot of the housing advocacy group East Bay for Everyone said his organization thinks that large investment firms buying homes is “a worrying trend.” He said investment firms realized they could “get in on the profits previously mostly going to a small share of lucky individual homeowners” and Invitation and Blackstone tell investors that they seek out regional markets that are not building much housing because more construction would hurt them.
However, Minot said the phenomenon is more a symptom than a cause of unaffordable housing, which he attributed to cities not building enough housing to meet demand for decades — particularly in major metropolitan areas.
“We think the reports proposing them (investment firms) as the primary culprits in the housing crisis are misleading,” Minot said. “While they are acquiring an increasing share of the homes that go up for sale from time to time (the flow), they still own a very small share of total rental housing (the stock), so their influence on the rental market is small.”
Minot said that firms differ from homeowners and landlords who own fewer than 10 homes, who typically attend public meetings to lament that if more housing is built around them, their investment will be hurt.
“Amassing wealth is a major concern of traditional homeowners, especially because our deeply unequal economy has pushed families to focus on homeownership as a way to build wealth - which is a zero-sum game,” he said. “If home prices go up more than the economy, that means renters are paying more of their income; yet we say home prices going up is good?”
Minot said building more housing at all income levels is the best defense against such investors, as are tenant protections like rent stabilization, just-cause eviction, rental registries and transparency in the beneficial ownership of housing under Assembly Bill 889.
“All of these restrain exploitative practices by landlords big and small," he said. "Both individual homeowners and big investment firms need targeted regulations to limit the worst of what they do and make it possible for them to invest better and in less predatory ways.”
Michael Manville, associate professor of urban planning at UCLA's Luskin School of Public Affairs, said there are other issues with Berkeley’s report, which he called “flawed and vague.”
“Institutional investors like to buy in the Bay Area because the Bay Area doesn't build housing. These companies feed off scarcity,” Manville said. He pointed out BlackRock's annual reports showing their business model works because there aren't enough homes, and said cities like Berkeley could “tax” those companies by simply building more housing.
Manville said the report does not give citation for the statement that private equity-backed landlords are 18% more likely than non-equity backed corporate landlords to evict tenants, nor answer if there is substantial evidence that institutional investors are keeping homes vacant.
He also thinks that proposing vacancy taxes on ballots, as one way to disincentivize corporate landlords from buying property and keeping it vacant, is not necessarily a good strategy when many California cities have very low vacancy rates, 7% or lower.
“Basically rents rose while vacancy fell, which makes sense,” he said. “A tax could raise some revenue, which is good, and you could spend that on affordable housing, which is good, but doing that basically just acknowledges that Berkeley needs more housing. The main way to keep it affordable is to build new housing, so rich people don't buy it up.”
Berkeley city leaders including the city manager and mayor did not respond to requests for comment to clarify Manville’s concerns about their report.
BlackRock’s media relations team declined to comment. Spokesperson Christopher Beattie said via email, “Contrary to some speculation and misperception, BlackRock does not purchase individual homes in the U.S.” He provided a statement the company circulated to address growing concern about its real estate goals.
The company says it invests approximately $120 billion in the U.S. residential real estate market on behalf of clients, and blamed large asset managers and private equity firms for purchasing single-family residencesFollow @@nhanson_reports
Read the Top 8
Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.