Should We Blame Wall Street for L.A.'s Housing Crisis?
Many big cities are grappling with exorbitant rents and rising home prices. But Los Angeles, as we've said many times, is one of the least affordable housing markets in the United States.
This mostly comes down to supply and demand. Vacancy rates are low, affordable homes aren't being built and, as the economy improves, more folks are competing to buy houses. Some landlords are using a state law to evict tenants and convert their properties to for-sale homes, too.
A new report from the California Reinvestment Coalition says Wall Street and so-called "institutional investors" also are playing a big role in your rental and home-buying nightmare.
The report, released today, is based on a survey of 80 housing nonprofits throughout California. Though mostly anecdotal, the evidence reasonably suggests, according to a summary, that "long-term tenants are being displaced, first-time home buyers are losing to all-cash offers by investors, and communities are being destabilized."
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The coalition comes out and says it, too: The Wall Street takeover of California real estate "will change the demographics of entire neighborhoods, raising fair housing concerns," the report says.
We call it gentrification.
Institutional real estate investors are singled out for buying up often "distressed" properties, victims of the subprime lending debacle, and either converting homes to rentals or simply raising the rates on rental properties.
The report says these all-cash investors are taking "numerous homeownership units off the market in favor of creating more rentals, even though these rental opportunities are less affordable and less stable than historically available rental options."
The coalition calls the new-era investor "a new kind of landlord," including hedge funds, private equity and others, who "focus on turning a dollar."
For example, the reports says:
When Berkshire Group bought a 75-unit building in Oakland in December of 2014, tenants received rent increases and were billed for many services that were previously covered in the rent. ... Berkshire raised certain rents 50 percent.
Data shows that some Wall Street real estate investment concerns consistently charge more than market-rate rents after buying property in California. This in a state where market-rate rents are often the highest in the nation.
California Reinvestment Coalition
And the coalition reiterates the obvious for L.A.'s market, saying, "Housing prices are rising but homeownership is declining as first-time home buyers are priced out of the market."
Even buyers with good credit are no match for all-cash institutional investors, the report says, quoting one of its letters to government officials:
Homeowners with excellent credit scores are not getting access to properties to buy. Not only are they frozen out of purchase because of the withholding of REOs, but they are finding lenders unwilling to close on loans they have been approved for.
The report's author, Kevin Stein, associate director of the California Reinvestment Coalition:
The irony in Wall Street profiting from a foreclosure crisis they helped create is not lost on anybody. Even worse, main street banks like JP Morgan Chase, Wells Fargo and Citigroup, who are subject to the Community Reinvestment Act, are enabling these harmful practices by financing these investors.
So, should you blame Wall Street for L.A.'s housing crisis? There's plenty of blame to go around.