How Wall Street Plans to Fix the Housing Crisis | Bullish

Key Concepts

Housing deficit, affordable housing, Wall Street investment in housing, corporate landlords, single-family rentals, institutional investors, public-private partnerships, Mitchell-Lama program, housing vouchers, rent control, housing affordability, housing crisis, impact investing, zoning laws, labor mobility, mortgage rates, foreclosures, rental assistance, housing subsidies, preservation of affordable housing.

The Housing Crisis in America

• Severity of the Deficit: The US faces a significant housing shortage, estimated to be between 3 to 7 million homes. This deficit is particularly acute in cities like Chicago, Miami, Honolulu, and New York.
• Declining Homeownership: Home sales in 2024 have fallen to a 30-year low, with rising home prices and mortgage rates making homeownership increasingly unattainable for many Americans. Rents are also increasing, outpacing household income growth. Zillow reported typical asking rent close to $2,000 in January.
• Wall Street's Role: Large financial institutions are increasingly involved in the housing market, raising questions about whether they will help solve the crisis or exacerbate it.

Don Mullen and the Rise of Corporate Landlords

• Background: Don Mullen, a key figure in the 2008 financial crisis (as portrayed in "The Big Short"), profited by betting against the mortgage market.
• Post-Crisis Opportunity: After the housing market crash, Mullen founded Pretium Partners, a company that bought foreclosed homes and converted them into rentals, becoming one of the largest corporate landlords in the US.
• Defense of Corporate Landlords: Mullen argues that corporate landlords provide access to housing in aspirational communities for people who may never be able to afford homeownership due to factors like FICO scores and student loan debt. He believes this offers opportunities for families to live in better school districts.
• Housing Vouchers: Mullen highlights the importance of housing vouchers, which allow people with low incomes (e.g., 30% of area median income) to live in higher-opportunity areas. He cites a case study in Atlanta where Pretium helped relocate families from a condemned public housing project to suburban communities.
• Institutional Ownership Statistics: While institutional ownership of single-family rentals is growing, Mullen claims it remains a small percentage of the overall market (less than 3%). He believes the industry's growth depends on dispelling the "false narrative" that it hinders homeownership.
• Capitalism and Housing: Mullen advocates for unleashing capitalism to build more housing, emphasizing the need for investment to generate returns.

Margaret Anadu and Impact Investing in Affordable Housing

• Background: Margaret Anadu, formerly chair of Goldman Sachs' Urban Investment Group, now a senior partner at Vistria Group, focuses on impact investing in affordable housing.
• Mitchell-Lama Program: Anadu discusses the Mitchell-Lama program in New York City, which created over 100,000 units of affordable housing between the 1950s and 1970s. However, a third of these units have been lost due to expiring regulations and disrepair.
• Personal Connection: Anadu's commitment to affordable housing stems from her personal experience of being bused to a better school in a different neighborhood, highlighting the impact of housing on opportunity.
• Investment in Underinvested Communities: At Goldman Sachs, Anadu focused on investing in underinvested communities like the Bronx, New Orleans, and the South Side of Chicago, aiming to generate returns while benefiting these communities.
• Housing as Wealth Creation: Anadu acknowledges that homeownership is no longer a guaranteed path to wealth creation, particularly after the 2008 financial crisis. She emphasizes the need to create stable housing options through renting as well.
• Government Intervention: Anadu stresses the importance of government intervention in affordable housing through rental assistance, subsidies, and property tax breaks for developers who meet affordability goals.
• Public-Private Partnerships: Anadu emphasizes that public-private partnerships are crucial for successful affordable housing initiatives. She notes that many investors lack experience working with the public sector.
• Scale of Investment Needed: Anadu estimates that trillions of dollars are needed to build more housing units and improve existing ones, requiring both private and public sector involvement.
• Preservation of Affordable Housing: Anadu highlights the importance of preserving existing affordable housing, as affordability restrictions often expire, leading to rent increases and displacement of residents.

The Role of Private Equity and the Future of Housing

• Controversy: Private equity's growing role in the housing market is controversial, with critics arguing that it threatens affordability and community control.
• Need for Private Capital: The US needs millions of new housing units, and governments cannot fund this alone.
• The Question of Role: The key question is not whether private capital will be involved, but what kind of role it should play in addressing the housing crisis.
• Institutional Investment in Multifamily Housing: Anadu points out that multifamily housing has long been institutionally owned and financed with private capital. She suggests focusing on how to encourage these investors to prioritize affordability.

Conclusion

The US housing market faces a complex crisis characterized by a severe shortage of affordable homes, declining homeownership rates, and increasing involvement of Wall Street and corporate landlords. While private capital is necessary to address the housing deficit, its role must be carefully considered to ensure that it promotes affordability and community well-being. Public-private partnerships, government subsidies, and innovative investment strategies are essential to creating a more equitable and sustainable housing market.