Back
in 1967, a friend of mine and I hitchhiked from East Lansing, Michigan, to
San Francisco to spend the summer in Haight-Ashbury. One ride dropped us off
in Sparks, Nevada, and within minutes of putting our thumbs out a city police
car stopped and arrested us for vagrancy.
The cop, a young guy with an oversize mustache who was apologetic for the city’s policy, drove us to the desert a mile or so beyond the edge of town, where we hitchhiked standing by a distressing light-post covered with graffiti reading “39 hours without a ride,” “going on our third day,” and “anybody got any water?”
Vagrancy laws were so twentieth century.
The Supreme Court on Monday is hearing a case involving efforts by the city of Grants Pass, Oregon to keep homeless people off its streets and out of its parks and other public property. The explosion in housing costs has triggered two crises: homelessness and inflation. The former is harming the livability of our cities and towns, and the Fed’s reaction to the latter threatens an incumbency-destroying recession just as we head into what will almost certainly be the most important election in American history.
The problem with housing inflation is so severe today that without it, the nation’s overall core CPI inflation rate would be in the neighborhood of Federal Reserve Chairman Jerome Powell’s 2 percent goal.
Both homelessness and today’s inflation are the result of the United States—unlike many other countries—allowing housing to become a commodity that can be traded and speculated in by financial markets and overseas investors.
Forty-three years into America’s Reaganomics experiment, homelessness has gone from a problem to a crisis. Rarely, though, do you hear that Wall Street—a prime beneficiary of Reagan’s deregulation campaign—is helping cause it. Thirty-two percent seems to be the magic threshold, according to research funded by the real estate listing company Zillow. That is, when neighborhoods hit rent rates in excess of 32 percent of neighborhood income, homelessness explodes.
And we’re 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.
It wasn’t always this way.
Housing prices have spun 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 three-bedroom, one-bath ranch house my three 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 2.2 times the median American family income. Today, the Fed says, the median house sells for $479,500, while the median American personal income is $41,000—a ratio of more than ten to one between housing costs and annual income. And remember, wherever housing prices become more than three times annual income, homelessness stalks like the grim reaper.
We’re told that America’s cities have seen this increase in housing costs since the 1950s in part because of the growing wealth and population of this country. There were, after all, 168 million people in the United States the year my dad bought his house; today there are 330 million.
And it’s true that we haven’t been building enough new housing, particularly low-income housing, as 43 years of neoliberal Reaganomics have driven down wages and incomes for working-class people relative to all of their expenses while stopping the construction of virtually any new subsidized low-income housing.
But that’s not the only, or even the main dynamic 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, in just the one single year of 2020, picked up over 154,000 homes as their way of parking money in America. Which is part of why there are more than 20 times more empty houses in America than there are homeless people.
But foreign investment has been down for the past few years; what’s taken over and is really driving home prices today are massive, multibillion-dollar U.S.-based 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 of Nashville, 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. The same thing is happening in cities and suburbs all across America; the investment goliaths use finely 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 high as the market will bear. In Spring Hill, for example, the vice mayor, Bruce Hull, told the Journal you used to be able to rent “a three bedroom, two bath house for $1,000 a month.” Today, the Journal notes, “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, Blackstone was 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 one out of every 10 homes sold in America, according to Dezember, who notes that, “Between 2006 and 2016, when the home ownership 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—in the wake of the 2008 Bush housing crash—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 regulate the industry.
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. This requires government intervention in the so-called free market.
—
Last year, Canada banned most
foreign buyers from buying residential property as a way of controlling their
housing inflation.
— New Zealand similarly passed their
no-foreigners law (except for Singaporeans and Australians) in 2018.
— Thailand requires a
minimum investment of $1.2 million and the equivalent of a green card.
— Greece bans most non-EU
citizens from buying real estate in most of the country.
— To buy residential housing in Denmark, it must be your
primary residence and you must have lived in the country for at least five years.
— Vietnam, Austria, Hungary, and Cyprus also heavily restrict who
can buy residential property, where, and under what terms.
This isn’t rocket science; the problem could be easily fixed by Congress if there was a genuine willingness to protect our real estate market from the vultures who’ve been circling it for years.
Unfortunately, when Clarence Thomas was the deciding vote to allow billionaires and hedge funds to legally bribe members of Congress in Citizens United, he and his four (at the time; now five) fellow conservatives opened the floodgates to “contributions” and “gifts” from foreign and Wall Street interests to pay off legislators to ignore the problem.
If ever there was a time to solve this problem—and regulate corporate and foreign investment in American single-family housing—it’s now.