[S3 E04] New
In this episode of Cities After…, Prof. Robles-Durán discusses the growing prevalence of corporate landlords and their devastating impact on affordable housing and homeownership. The mass acquisition of single-family homes and apartment buildings by private investment companies, backed by global finance and, often, as Prof. Robles-Durán reveals our own pension funds, capitalizes on our basic need for housing as a human right and turns it into a profit-making enterprise. This phenomenon grows out of the capitalist-fed dream of private homeownership, which has never been truly accessible to the masses. We need community land trusts, cooperative housing, and to put an end to the predatory commodification of housing before it’s too late.
Transcript has been edited for clarity
Thank you for streaming Cities After, a radical exploration into the capitalist contradictions of our urban world and the many anti-capitalist features to come. This is a Democracy at Work broadcast and I'm your host Miguel Robles-Durán. In this episode I will inquire into a rapidly expanding global threat to an elemental human necessity: mega-landlords.
As an introduction to the episode I want to give you my definition: a mega-landlord is a type of corporate landlord that leverages private equity to exploit the housing vulnerability of large communities undergoing financial stress during and after a crisis. The profitable objective of the mega-landlord is to transform entire populations of homeowners into renters and gridlock the housing market so that disadvantaged future generations become dependent on their rental properties for basic shelter. In my view mega-landlords are a legal new breed of urban terrorists. They must be urgently dismantled through concerted efforts of direct action, protest media exposes, political pressures and the passing of new legal instruments.
A little over three months ago, in November 2022, JPMorgan Chase, one of the largest financial institutions in the world, with assets of more than 3 trillion dollars, announced that it had entered a joint venture agreement with the opportunistic private equity firm Haven Realty Capital; stating that they will begin acquiring over one billion dollars of build-to-rent properties, commencing with a regional focus in Atlanta's urban region. This announcement was just one of the most recent in a rapidly growing private equity investment trend towards the mass acquisition of single-family rental homes across the globe. As with most large enterprises under capitalism, this investment trend follows the many predictions of an ever expanding market from which to extract as much profit as possible and at the same time support the urgent needs of capitalists to launder and absorb their money surplus into more secure assets. For residential real estate the 2008 global financial crisis and recently the pandemic crisis created such expanding market conditions.
Among the most stocked early examples of these predatory behaviors are the residential real estate acquisition tactics employed by the American private equity firm Blackstone - this during the six year long Spanish mortgage crisis that began, of course, with the global financial crisis in 2008. During this period Blackstone specialized in providing urgent liquidity to cities and regional governments, this by acquiring rent-stabilized apartments from them. And parallel to this they were also purchasing and restructuring these distressed mortgages from banks at heavily discounted prices. Of course Blackstone later profited even more by taking advantage of low income renters and distressed borrowers, repossessing their assets at far below market prices as well as turning some of their homes into rental properties at market rates, in many places at 50 percent above their previous value. At present Blackstone is the biggest private landlord in Spain. So far it has poured in excess of 10 billion Euros, hoarding a residential portfolio of over a hundred thousand mortgages and over thirty thousand properties across the country. So before the 2008 financial crisis the majority of global real estate investors had only focused on acquiring industrial, commercial and retail property.
Blackstone shifted this paradigm. Guided by the opportunistic and predatory psychopathy of its founder and CEO Stephen Schwartzman, it became the pioneer corporation that laid out the highly lucrative operative principles that many residential mega-landlords of the future would follow. Let me illustrate what I mean by the psychopathy. In a financial services conference in 2010 Schwartzman said the following: "we are basically waiting to see how beaten up people's psyches get and where they're willing to sell assets. You want to wait until there is really blood in the streets." By the way, I'm sure that this kind of enlightening and compassionate talk must be the reason top universities of the world love to name buildings after him. For example MIT has the Stephen A Schwarzman College of Computing, Yale has the Schwarzman Center, Oxford University has the Stephen A Schwarzman Center for the Humanities. And even China's top-ranked institution Tsinghua University now has the Schwarzman Buildin that is somehow a college dorm and research center. Okay, apologies for this short diversion.
But now let me get back to the topic. So since its highly profitable ventures in Spain Blackstone has only been expanding its property-owner footprint. And thanks to the pandemic crisis it is now considered to be the largest commercial landlord in history. Just in 2021 its distributable earnings increased a staggering 85 percent, reporting the most lucrative results in its history. It has accumulated a global real estate portfolio valued at close to 600 billion dollars. And it now has total assets approaching 1 trillion dollars. To put this in perspective this is approximately 65 percent of Spain's annual gross domestic product or GDP. This is the GDP of the 14th largest economy in the world. Today Blackstone boasts a rapidly growing presence in Europe and the Asia-Pacific region, with significant real estate investments in Germany, the UK, Japan, Brazil, India, China and obviously in its home turf the USA. Back in the mid-2010s Blackstone became the poster child of predatory mega-landlordship. After all, they were the pioneers.
And thus the American private equity firm has been a constant target from housing-rights advocates and legislators across the globe, and rightly so. By the way, if you're interested in knowing more about the fight against Blackstone I have two previous podcasts where I speak about some of these battles with Leilani Farha, the former United Nations rapporteur on the right to adequate housing and with the founding members of Spain's Plataforma de Afectado por la Hipoteca, translated roughly as a platform for people affected by mortgages. Both of them have been challenging Blackstone for years with some success.
However, today's residential landscape of mega-landlords is not as easy to target as it was back then. If anything it has dangerously fused with global finance to the point that it is now a relatively common form of investment in the portfolios of insurance companies and pension funds. And to make it even more complex this venture seems to be desired and heavily incentivized by state, regional and municipal governments. For example in the USA the majority of the distressed mortgages owned by the federal mortgage agencies known as Fannie Mae and Freddie Mac were sold at bargain prices to Wall Street investors without significant regulations. This resulted in private equity firms acquiring over 200,000 single-family homes in suburban and urban areas across the nation. Another example that I talked about is Madrid, where the government has willingly sold thousands of protected homes to vulture funds owned by multinational private equity managers. By now almost every big global financial player is in the game, from Goldman Sachs to the Qatari Diar real estate investment company to Deutsche Bank to Blackrock, the largest investment management company in the world. Hell, even supposedly conservative welfare-state banking institutions such as Norges Bank, the Norwegian Central Bank have now large investments in residential mega-landlords.
The bottom line is that in a little more than a decade and thanks to two global crises the large ownership of rental homes is now considered a prime and profitable investment, one that it is secure enough to be trusted by our pension funds. Another way to say it is that it is so secure and profitable that pension funds are investing in our future homelessness. And by doing so they are also investing in favor of housing precarity for all young and yet-to-be-born generations. This is an extreme contradiction that I want to elaborate further.
But before I continue to dive in I need to make an important parenthesis about private property and homeownership. This is because the most common criticism against mega-landlords asserts that families of would-be homeowners cannot compete with the acquisition power of global investment firms, making it impossible for most citizens to afford the purchase of a home and thus forcing them to be renters for life, mostly crushing the dream of home ownership, that sacred right to possess and to have private property that has been so deeply ingrained in our capitalist societies. And this is now threatened by bigger capitalist predators. This critique is indeed correct. But for many of us that have advocated for housing as a fundamental human right the idea of home ownership as speculative private property is at the root of the problem and needs to be contested. Housing for many of us is a right that cannot be speculated on. It is the site for individual development, collective production and social reproduction that must be accessible to everyone. Therefore our work for housing justice is always focused on the eradication of the private property housing market by supporting the design and development of community controlled non-speculative property models of living, such as limited-equity housing cooperatives and community land trusts. I feel it was important to make these parentheses. Because almost every article I have recently read about mega-landlords romanticizes homeownership and private property as if everything was nice and perfect before the mega-landlords came into the picture and stole the right or dream away from the middle class.
To understand the current threat of mega-landlords we must have present that housing under capitalism and its system of private property has always been an instrument for the continuous coercion, exploitation and wealth extraction of the general population. Let me put this clear: landlords are social parasites, they provide no social value, they are so focused on extracting money that they perceive people's basic need for a shelter as an opportunity to generate substantial profits. They exist because they are legally permitted to accumulate wealth by privatizing and controlling the access to a home, which is an essential element of human survival. Building upon this critique, residential mega-landlords are just the latest and more evil stage of this capitalist nightmare.
So to close this parenthesis I want to read a quote from Karl Marx's economic and philosophic manuscripts: "private property has made us so stupid and one-sided that an object is only ours when we have it, when it exists for us as capital or when it is directly possessed, eaten, drunk, worn, inhabited, etc. In short, when it is used by us. Although private property itself, again, conceives all these direct relations and realizations of possession only as means of life. And the life which they serve as means is the life of private property, labor and conversion into capital."
Okay, back to the threat of residential mega-landlords. As private property goes, rental homes are quite distinct from industrial property, retail spaces or office buildings, as they generate profit primarily from their occupants' basic need for shelter. And clearly having the finance industry as a landlord, with their sharp focus on boosting profits, no matter what, directly conflicts with the needs of current and future tenants for home security. However, concentrating the ownership of thousands of residential properties in selected urban areas has social implications that go way beyond the exploitation of tenants. As mega-landlords monopolize the housing stock of complete regions they have absolute control of setting rental and property prices, allowing them to socially engineer and manipulate urban environments for profit to a level that has never been seen before. This means that they can decide what kind of people they want in relation to their capacity to pay rent while excluding others. This power means that they can easily coerce municipal governments to pass legislation that favors them and not favors the population. It means that they can decide to hoard residential property, financialize it, add it in their portfolios and never sell it back. Mega-landlords and their investment partners have been betting in the creation of a new class of fully dependent precarious tenants-for-life. And this definitely sounds profitable.
As with all things with capital it makes profit by taking advantage of a vulnerable situation, a crisis or social need to exploit. It is opportunistic. But in many times it creates its own opportunities as it plunders. A good example of this was what I talked [about] at the beginning of the episode on the 2008 financial crisis. Bankers, governments, property developers and mortgage institutions work together to inflate a market bubble by tapping into the dream of home ownership of entire populations, promoting subprime mortgages and predatory lending practices. And once the bubble went bust a new opportunity was created to plunder from those that were evicted or no longer were able to maintain or afford to buy a home. And so the finance industry turned an eye towards acquiring rental property. And to add to this bonanza there is no doubt that the pandemic crisis has played an important part in the increased demand for rental homes.
To put the current housing crisis into perspective, according to the U.S Federal Home Loan Mortgage Corporation, which is commonly known as Freddie Mac, the U.S currently has a five percent homeowner housing deficit, which accounts for approximately 4 million homes. This deficit is 50 percent higher than in 2018 and double from 10 years ago. The rights of interest rates, debt, the lack of consumer confidence, material costs and overall general inflation, of course, has only been exacerbating this deficit. Also, before the 2008 financial crisis the share of home renters was about 31 percent. In 2019, just before the pandemic, the share of renters was almost 37 percent. And in the few post-pandemic estimates that currently exist they gauge an increase of another 2.2 percent. So from a nation that had 31 percent of rental households to one that currently has 39 percent and increasing it is really astonishing what two global crises can do. The substantial increase in the number of rented households amongst younger and middle-aged demographic groups between 2009 and 2019 marks a very clear shift towards the impossibility of up-and-coming middle and low-income earners of ever owning a home.
Let me add another statistic to this dire panorama: from 2020 to 2022, which are the pandemic years, the Standard and Poor's Case-Shiller home price index, which is the index that tracks home prices in the United States, rose from 212 points to 307. This indicates that home prices in the U.S have gone up approximately 45 percent. This has created a fictitious 9 trillion dollar owner-occupied housing wealth bubble. And this happened at the time where approximately 2 million renter households were unable to afford their rent and many millions more were under financial stress.
Ultimately, as housing prices continue to rise sharply, not only in the U.S but around the world, it is making home ownership an unreachable dream for newer generations. In reality it appears there's nothing left to do but rent to a mega-landlord. But it is important to stress that this is not a unique American phenomenon. This is a global trend. And global finance is spearheading it, with the aid of your pension funds, of course. For instance the European Public Real Estate Association reported that the market capitalization of Europe's publicly traded residential real estate sector surged from 3.5 billion euros in 2006 to almost - listen to this - 85 billion as of July of 2021. This is an absolutely staggering increase of 2,300 percent in 15 years. 2,300 percent!
And the rent has not gotten cheaper. For example in some cases the rent prices in a city like Berlin rose 40/45/43 percent in the periods between 2016 and 2021. So what are the implications of the fact that mega-landlords are amassing millions of homes worldwide with the sole purpose of being traded as commodities in the stock market, needless to say with the aim of maximizing profits for investors?
I'm sure there are too many but here's a list of just three possible dystopian scenarios. Here's the first scenario: with the control of rental markets and the increase in accessibility of purchasing homes to non-financial buyers, mega-landlords will be increasing the rental prices substantially, to the breaking point of tenants, keeping them at the thin edge of economic instability, as long as they have a capacity to pay the rent. These rapacious practices will be aided by their easy access to the renter's financial data. On this front, JPMorgan Chase has recently unveiled an ubiquitous rent payment platform that, according to their Chief Innovation Officer of its Commercial Banking Division, would provide mega-landlords with beneficial data and analytics that can aid in setting rental rates, identifying potential investments and facilitating tenant screening. Yes, the extension of the finance industry into mega-landlordship improves their algorithms.
Here is the second scenario: besides the prospect of continuous rent hikes, abusive extra fees and reductions in maintenance and building improvements are to be expected as mega-landlords will try, no matter the social consequences, to keep the business lean and profitable. Blackstone has also been paving the way on this front. In a special investigative report the news agency Reuters mentioned that Blackstone Properties in the U.S have been flooded with common complaints of Black Widow Spider infestations, floods of raw sewage, plumbing leaks, vermin, toxic mold, non-functioning appliances and months-long waits for repairs. In Madrid the Tenants Union has also accused Blackstone of extreme rent hikes and lack of maintenance. The same happened in Stockholm, where the company bought 16,000 apartments and increased the rent by 42 percent on over a thousand of them while reducing their upkeep costs and maintenance.
And, lastly, here's the third scenario: with their enormous power, mega-landlords will influence even more urban, environmental, social and economic policy as they buy out politicians, sue municipalities and, of course, misinform voters. This is what the mega-landlords did in California back in 2018. When, in coalition with the Real Estate Development Lobby, they spent over 65 million dollars - seven of them by Blackstone - in a concerted campaign to oppose California's Proposition 10, which would have introduced rent control measures to help thwart the dramatic increase of rent-burdened families and an out-of-control level of homelessness. One of the mega-landlords in the coalition, the Chicago-based Equity Residential, has been, for example, hoarding trailer-home parks. This is where people at the brink of homelessness tend to live. And they've amassed throughout California, while subsequently initiated expensive legal proceedings against small municipalities that hosted these parks, aiming to eliminate regional rent-control ordinances. And here I go back to the pension fund contradiction I touched upon before. A large part of the 65 million dollars in campaign funds to stop Proposition 10 were derived from investor pools composed of several state and local pension systems, public university endowments, among others. Our governments, education system and other institutions, created to protect us and support our retirement, are all in it.
Across the world the finance takeover of housing is ramping up. And, as with most things touched by finance, the new asset class of single-family homes, coupled with the continuous buyouts of multi-family units directly threatens the livelihoods of the majority of the world's population, as well as the well-being and security of all coming generations.
I want to end up with a question to you: how is this not criminal? I'm looking forward to read your comments below. And if you like this episode please don't forget to give us a like. Until next time.
Transcript by Brendan Tait
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