Pub. 18 2021 Issue 2

Issue 2 • 2021 17 Mark Anderson, Legal and Legislative Assistant, New Mexico Bankers Association with renovators and supply chains making it hard to even acquire raw materials, this very big near-term snarl is killing new home supply.” Another factor impacting the American housing market is properties owned by institutional investors, such as private equity firms or hedge funds. Institutional investment began to increase following the 2008 crisis and, while not a significant factor yet in some parts of the country, its effects on homeownership are plain to see. One example of institutional investment and its effects is Invitation Homes, a $21 billion publicly-traded company that is an arm of private equity giant Blackstone. Invitation Homes operates in 16 cities, with its largest share in Atlanta, where it owns 12,556 homes as of earlier this year. While the average person usually pays a mortgage interest rate in the 2-4 percent range, Invitation homes can get billion-dollar loans at an interest rate of 1.4 %. This puts Invitation at a considerable advantage in practice because they can afford to charge an additional $5,000 to $20,000 to the purchase price of every home while getting the house at the same actual cost as a typical homeowner. Invitation Homes’ offers are almost always in cash, which is a considerable advantage in a competitive market. To put it into perspective, Invitation Homes’ portfolio of homes is worth a total of $16 billion, and the company collects about $1.9 billion in rent per year. That means it takes about eight years of rental payments to pay back a typical house that Invitation Homes purchased. Typically, a fair price to rent ratio is assessed to be 20:1, or 20 years of rental payments to pay back the sale price. Invitation Homes specifically targets houses with the greatest potential to build wealth for the middle-class, most notably relatively affordable single- family homes built since the 1970s in metro areas. As a recent article in Slate details, investors are able to search markets scientifically and make cash offers on the most attractive properties. “Investors are depleting the inventory of the precise houses that might otherwise be attainable for younger, working- and middle-class households, in the cities where those workers can find good-paying jobs. While normal people buy houses when they actually need to move somewhere, institutional investors buy houses before a bunch of people need to move to an area.” Ultimately, this trend will make more people renters, and the United States has very poor protections for rental tenants. In Albuquerque, the real estate market is experiencing a similar boom to most metropolitan areas around the country. In June, according to data published by the Greater Albuquerque Association of Realtors, the median home price in Albuquerque hit $305,000 – up a whopping 25.8% from June 2020. In Albuquerque, it is a similar story to the rest of the country, as increased post-pandemic demand has come face-to-face with the dwindling housing supply that faces many metropolitan areas in the United States, creating conditions for housing prices to explode. Since the Great Recession, new construction of residential dwellings in New Mexico overall has slowed dramatically. As mentioned earlier, there was great reluctance on builders and lenders to repeat the mistakes of the early- to mid-2000s when the housing supply expanded along with an increase in exotic mortgages. In New Mexico, this lack of new construction has been felt acutely, as the increase in permits for residential housing units was only 8.4% from 2015 to 2019, compared to 17.2% for the United States. New Mexico has historically boasted a higher homeownership rate than the national average, primarily because of affordability. However, every trend in the U.S. currently is making homeownership more of a luxury than anything else. It’s becoming increasingly unattainable for the average person to purchase a home because every single factor is weighed against them. Limited home supply and institutional investment, two trends that are likely to continue, will only cause more people to be unable to participate in something that was once a staple of middle- class American life. Owning a home was once thought to be a source of stability and happiness in the lives of many Americans, but that concept seems to be going out the window. These current trends are only going to leave millions more on the outside looking in. The good news is that housing is not the intractable problem many others seem to be. There are real solutions proposed by people who deeply care about this issue, but it’s up to society to be willing to listen. The current trend in housing is that it’s increasingly becoming consolidated in the hands of extremely powerful, wealthy people. That will be felt most painfully by the average homeowner, and we, as Americans, must not allow another basic human need to become exploited by the mega-rich. n Owning a home was once thought to be a source of stability and happiness in the lives of many Americans, but that concept seems to be going out the window. These current trends are only going to leave millions more on the outside looking in.