Aside from Congress, perhaps, it’s hard to think of a group of people that Americans dislike more than financiers and landlords.
That’s why, when it became clear over the past few years that Wall Street hedge funds and other investor groups started to buy inexpensive properties and convert them into rental housing, much of the media braced for the worst. Left-leaning outlets like Mother Jones started to fret in 2012 when the first hedge funds began to snap up cheap, foreclosed real estate with the intention of profiting from the discrepancy between depressed home prices and rising rents.
And on Thursday, The New York Times looked into the phenomenon of investor-owned properties in Ferguson, Missouri, the lower-middle-income suburb of St. Louis where an unarmed black teenager was shot and killed by police, stoking racial tensions and a national debate over racism and police tactics. According to the Times:
The institutional money has meant a decline in the number of vacant homes and an increase in rental properties, but it has also raised concerns about the long-term intentions of these mainly out-of-town landlords and whether they will upgrade Ferguson’s aging housing stock.
But neither the Times nor the many other muckrakers going after the investor-as-landlord model has provided evidence that these bigger landlords are any worse than the mom-and-pop local land owners that were more common before the housing crisis. The main complaints from the Times:
- Half of Ferguson’s more than 6,000 homeowners are underwater, owing more on their mortgages than their homes are worth;
- The investor-funded firm, Raineth Housing, which has bought dozens of foreclosed homes in Ferguson and converted them to rentals, is owned by wealthy people in faraway Los Angeles;
- The homes Raineth owns are old and somewhat worn down;
- And that Susan Rollins, executive director of the Housing Authority of St. Louis County, said she put Raineth in the “bottom third” of landlords receiving federal rent subsidies when it comes to basic repairs and renovations.
The only concrete complaints unearthed in the story: there was a problem with mold in one house that was the result of a leaky pipe in the basement and a plumbing problem, which resulted in sewage backing up into the yard. Raineth co-founder Edward R. Renwick said that this issue was fixed Monday after receiving the complaint on 8 p.m. the previous Saturday.
Any landlord who doesn’t do his utmost to keep homes well-maintained and in livable condition should be condemned outright. But there’s no evidence that investor-funded-groups buying single-family homes on a large scale are more likely to be worse landlords than local owners.
Sure, the housing stock in Ferguson is older and more rundown than homes in wealthier areas. But this is not the fault of hedge fund investors, as affordable housing tends to be older and less desirable. If that seems like an unacceptable situation to you, then it needs to be remedied through government action, either through the construction of public housing or increased housing subsidies to the poor. The quality of affordable housing will not be improved by preventing certain kinds of investors from buying undervalued homes. To the contrary, there’s plenty of evidence supporting the notion that these sorts of buyers helped stop the downward spiral in home prices and spark a housing recovery.
In the end, Ferguson is like many poorer-than-average towns in America. It was hit harder by the housing bubble than many areas, and its homeowners are more likely to be underwater than owners in the U.S. overall. But the blame for this can’t be placed on investor funds that are stepping in to buy underpriced homes and, in the process, stabilizing the market.