THE SET-UP: I think we’re witnessing a new phase of Supply Side economics. Beginning in 1981, the economy produced a series of financialized booms and busts that generated opportunities to hoard suddenly-cheap assets on the dip. Through the Savings & Loan collapse, the 401k/Dotcom Bubble and the Subprime Housing Crash, the Supply Side fueled booms and then hoarded assets after the bust. Now, thanks in large part to “Quantitative Easing,” Supply Siders have finally amassed more capital than they know what to do with. So, they are buying everything. Google “private equity buys” and click on the “News” tab.
Okay … I did it for you, just click here,
If you do that as often I as do, you’ll see that private equity is buying everything from mobile home parks and sandwich shops to dental practices and handyman companies. While our attention has been focused on a political reality show, the capital-rich Supply Side of the economy has been in a feeding frenzy. I believe it explains the gravity-defying stock market and the emergence of an uber-wealthy cadre of society-shaping Surveillance Capitalists. They have soaked up the excess capital that pooled on the Supply Side after the Crash of 2008.
Now the Supply Side of the economy has reached a critical mass of wealth concentration and it is effectively decoupling financial elites from the vicissitudes of the Demand Side of the economy. As capital-poor consumers and wage earners, most of us are stuck on the Demand Side. We are not insulated from macroeconomics or inflation. We likely rely on high interest debt to maintain our day to day lives. And we are now losing our grip on mobile home parks.
IMHO, this economic phenomenon is an under-examined contributor to both the opioid/fentanyl crisis and the growth of encampments in cities and towns around the country. Homelessness and the use of tents, vans and RVs as homes didn’t come out of nowhere. - jp
TITLE: Wall Street Is Betting Billions on Rental Homes as Ownership Slips Out of Reach
https://www.wsj.com/real-estate/build-to-rent-single-family-home-investments-d6e57200
EXCERPTS: AvalonBay Communities, one of the largest multifamily real-estate investment trusts, is the latest to step up in the build-to-rent business. It recently purchased a set of 126 build-to-rent townhomes in Bee Cave, Texas, for $49 million.
AvalonBay is part of a rush of institutional investors and private-equity firms pouring into the build-to-rent market, a subsector where developers construct neighborhoods of single-family homes for the sole purpose of leasing them to tenants, rather than selling them to prospective homeowners.
They are aiming to capitalize on a growing cohort of people who felt they would become homeowners as they move to the next stage of life and start a family but are increasingly viewing renting as a more affordable long-term option.
From 2021 to 2023, the share of build-to-rent housing starts doubled to 10% of overall single-family housing, according to the National Association of Realtors’ analysis of U.S. Census Bureau data.
Blackstone, Invitation Homes and Pretium Partners are among the big Wall Street firms expanding their build-to-rent portfolios as demand for rental housing balloons.
For the first time in more than two years, the growth of the U.S. renter pool has outpaced that of homeowner households for the past four quarters, according to a Redfin analysis of U.S. census data. In the third quarter, the formation of renter households increased 2.7%, three times faster than homeowner households and the second fastest rate for renters since 2015.
The rapidly expanding renter pool is a direct response to the widening gap between how expensive it is to rent versus own a home in the U.S., especially as mortgage rates stay heated at nearly 7% with no immediate signs of cooling.
Home prices hover near record highs and the average monthly mortgage payment for a new home is 38% more expensive than apartment rents, according to a CBRE report from earlier this year.
Developers and investors say their build-to-rent communities offer a solution to the country’s persistent housing shortage. And they say their rental homes allow tenants to live in the sort of desirable neighborhoods where they often can’t afford to buy.
But some economists say that the build-to-rent movement is shifting developers’ attention away from the home-buying market where more supply is needed to normalize prices.
In the Sunbelt, for example, instead of new housing supply “coming onto the open market,” it is “being diverted” for build-to-rent activities, Moody’s director of economic research Ermengarde Jabir said.
Government regulators and housing officials are also keeping tabs on the influx of big institutional investors building out their single-family rental portfolios.
In September, Invitation Homes, the biggest single-family rental operator in the U.S., agreed to pay the Federal Trade Commission $48 million to settle charges related to deceptive rental pricing practices and unfair evictions.
“When institutional investors or larger landlords own the rental units, we see an increase in the number of evictions for tenants,” said Ruth Jones Nichols, a former housing official in the Biden administration who now serves as executive vice president of programs at the Local Initiatives Support Corp. “That’s something we really want to keep an eye on.”
TITLE: 'Gouged Unmercifully': States Consider Rent Control Amid Flood Of Private Equity Into Manufactured Housing
https://www.bisnow.com/philadelphia/news/affordable-housing/can-rent-control-keep-manufactured-housing-affordable-in-new-jersey-and-pennsylvania-127106
EXCERPTS: Manufactured homes have been a vital source of market-rate affordable housing for years, but a tidal wave of private equity entering the sector has residents and lawmakers worried about the notable increase in lot rents that followed.
Rent for some of the nation's most economically accessible housing is on a swift rise: Lot rents in manufactured housing communities grew by 7.7% nationwide in the year leading up to the second quarter, according to a Northmarq report. That was the steepest annual increase on record and the third consecutive year rents grew 5% or more.
Manufactured home communities, or MHCs, where tenants generally own their homes but not the land they sit on, have traditionally been run by local “mom-and-pop” owners. But that status quo has shifted dramatically in recent years, according to a report from the Private Equity Stakeholder Project.
The self-described watchdog group found that private equity firms accounted for 23% of manufactured home purchases in 2020 and 2021, up from 13% between 2017 and 2019.
More recently, the Lincoln Institute estimated that a fifth of manufactured housing communities, or about 800,000 homes, were purchased by investors between 2015 and 2023. That number is expected to grow as companies respond to demand for affordability, said James Cook, national director of brokerage at Miami-based Yale Realty & Capital Advisors.
“When I started in this business in 2007, you could count on one hand the number of institutional players,” he said earlier this year. “Today, it’s well north of 100.”
Affordable housing investors traditionally focused on value-add garden-style apartments, but those units are often no longer “truly affordable” for low-income Americans, said Marc Tropp, a financier who has helped originate loans for manufactured housing deals worth up to $25M.
As a result, institutional investors have flocked to MHCs in droves.
“It’s no longer looked at as a second-class real estate transaction,” said Tropp, who also serves as a senior managing director with Eastern Union. “People are now promoting it.”
The trend was also driven by the weak state of the retail and office markets.
“They’re looking at other areas that would be beneficial for their investments,” Gaiski said.
Mobile home shipments surged in the wake of the pandemic as people sought cheaper ownership options. An estimated 22 million Americans live in 43,000 manufactured housing communities across the U.S., according to data from the real estate investment services company Matthews.
Those shipments have now normalized to prepandemic levels, leaving a supply-demand imbalance that offers a clear advantage for investors.
TITLE: Sprawling portfolio purchase caps month of outsized affordable-housing acquisitions
www.costar.com/article/2024043550/sprawling-portfolio-purchase-caps-month-of-outsized-affordable-housing-acquisitions
EXCERPTS: A private equity fund and an affordable housing provider bought tax-advantaged multifamily properties with nearly 5,000 units across four states, extending a string of recent investments by firms trying to capitalize on higher costs and expiring affordability contracts at government-subsidized apartment complexes.
Affordable housing investor Hudson Valley Property Group and private equity firm Wheelock Street Capital have acquired 22 multifamily properties in Washington, Colorado, California and Idaho. The properties — concentrated in the Denver; Seattle; and Spokane, Washington areas — will be reserved for tenants earning less than 60% of the area’s median income as part of the federal Low-Income Housing Tax Credit program.
More federal subsidies are expiring in the coming years under that tax credit program launched in the late 1980s that developers rely on to help make projects work. The expirations are creating a plethora of acquisition targets for affordable housing firms looking to leverage high housing expenses.
"The U.S. is dealing with an affordable housing crisis that continues to face challenges due to a major supply-demand imbalance, having added only about 7.3 million housing units in the past decade, while the population has grown by 22 million," Jason Bordainick, co-founder and managing partner of Hudson Valley, told CoStar News. To meet the need, he said, Hudson Valley "focuses on preserving and rehabilitating the country’s existing affordable housing stock which are at risk of leaving the affordable supply."
The flurry in recent weeks of U.S. affordable housing deals valued at well over $1 billion comes as affordable and middle-income apartments have emerged as a high-demand segment of the multifamily industry, and as a flood of new high-end supply and changing demographics has accelerated rent growth in many markets.
The average American renter is now paying roughly $275 more per month in rental costs — a 19% increase nationwide — since the pandemic, according to CoStar data. Analyses from Harvard University’s Joint Center for Housing Studies have shown that more than 22 million renter households in the United States are now cost-burdened — or spending more than 30% of their incomes on rent, which is considered a tipping point for personal financial stability.
This year, an estimated 1,075 rental properties will reach the end of their contracts and are expected to lose the governmental assistance that allows them to maintain affordability, according to the National Housing Preservation Database. That number could more than double in 2025 to 2,269 properties.
In total, federal assistance for more than 9,500 affordable properties is expected to expire over the next five years, including more than 337,000 homes.
As these contracts run out, some market watchers worry rents at those properties will return to elevated market rates, driving out current tenants, if there's a lack of new investors ready and willing to preserve the property's affordability structure.
As part of Hudson Valley's business model, the firm works to extend those regulatory agreements to ensure housing remains affordable while leveraging partnerships with private and public entities to deliver returns to investors.