Concerns over high housing prices have been ubiquitous this past year. Even the White House is talking about it. Finger-pointing has increased commensurately to pin blame on the rise. Explanations have ranged from low interest rates, a lack of supply, and pent-up demand (likely a combination of these factors), to inflation run amok and wealthy families snapping up extra bonus homes. But dig a little deeper into the finger-pointing, and eventually, perhaps inevitably, Wall Street emerges.
If Twitter replies are indicative of anything (a tenuous metric, admittedly), people are not happy with the accused. The other week, the Internet collectively lost its mind over coverage of BlackRock’s foray into single family homes (SFRs). Surely these guys and the rest of Wall Street are to blame for astronomical housing prices! Outrage was bipartisan, with both the left and the right conjuring their own idealogical slants for what what was going on. Conspiracy and conjecture followed. Multi-trillion dollar asset managers are an easy scapegoat to pin blame on — but is it deserved here? And what role does private equity have in shaping our built environment broadly?
First, some context. Over the last 25 years, capital allocations from institutionally backed firms have increased considerably into real estate. Institutions may be pension funds, university endowments or insurance companies, along with a few other types of firms. Private equity firms and asset managers, like Blackstone, BlackRock and Starwood, invest on behalf of these institutions, identifying investment opportunities to satisfy their partner’s return requirements.
As competition has heightened for the best real estate deals, and the need for yield intensified, investors have gone looking for the next great asset class. And in the last decade, that asset class has been single family rentals. SFRs have gained popularity among renters because they confer the lifestyle and space that a single family home in a suburban neighborhood offers, without having to come up with a…