SACRAMENTO, Calif. — Now that many populist Republicans have largely abandoned free-market conservatism, it’s getting hard to distinguish dopey Democratic policy ideas from dopey Republican ones. Apparently, the Horseshoe Theory — where each end of the political spectrum is separated by the distance between the ends of a horseshoe rather than at the ends of a continuum — is getting proven every day.
The latest example is best explained with a couple of recent quotes. OK, who made which of the following statements: President Donald Trump or California Gov. Gavin Newsom, the self-styled leader of the Trump resistance?
A: “These investors are crushing the dream of home ownership and forcing rents too damn high for everybody else. I think it is shameful that we allow equity firms in Manhattan [to] become some of the biggest landlords here in our cities.”
B: “I am immediately taking steps to ban large institutional investors from buying more single-family homes… . People live in homes, not corporations.”
For the record, A is Newsom and B is Trump, although it doesn’t really matter given the basic policy is the same — except perhaps that Newsom is unlikely to push the total ban advocated by Trump. Ironically, the president’s plan also mirrors the one from his presidential opponent, Kamala Harris. It was one of the examples conservatives used to depict her as an out-of-touch socialist.
At the time of Harris’ pitch, CNN offered some data: “While investors are still buying up U.S. homes, purchases in June fell to 80,000 units, according to CoreLogic. That represents a drop of nearly 50% from a peak of 149,000 in June 2021, reflecting a return to pre-pandemic levels. CoreLogic counts any individual or corporation that has three or more properties as an investor.”
And CoreLogic’s metric probably overstates the size of corporate ownership. Mom and pop landlords often own three or more properties as investors, and many small investors create LLCs and therefore are technically corporations. According to an article in Dow Jones’ MarketWatch, truly large corporate buyers own around 2 percent of the nation’s housing stock. They have a larger footprint in some cities such as Atlanta, but it’s rarely above 10 percent.
Yes, when large buyers purchase properties they muscle out potential homebuyers, but corporate buyers are less likely to pay excessively high amounts than a buyer smitten with a fancy new kitchen. They aren’t hoarding properties, but putting them on the market as rentals. Some corporate purchases come in the form of REITs (Real Estate Investment Trusts), which are just a new take on the age-old model of small investors pooling their resources to buy real estate.
When I used to invest in rental properties, I found it harder to snap up great deals on properties after big corporate investors entered the market, but so what? That’s how free markets work. People are free to buy and sell property or anything else. Competition ebbs and flows. As long as there’s a willing buyer and seller and no one is getting a special government-granted privilege, that’s the American way.
Trump’s, Newsom’s, and progressive icon Sen. Elizabeth Warren’s attacks on corporate landlords are reminiscent of those local governments that banned Airbnbs because of short-term rentals’ alleged impact on housing supply. In that MarketWatch article, the Cato Institute’s Scott Lincicome called it “Populist Policy 101. Pick a villain and blame it for a real problem even though it is a minor, if not totally insignificant, player in causing it.”
And here’s a similar explanation from CalMatters: “’It’s really hard to buy a house right now so people are looking for someone to blame for that, but I think (institutional investors) are more of a symptom of the affordability crisis than they are a perpetuator of it,’ said Caitlin Gorback, a University of Texas at Austin economist who has studied investors’ effect on local real estate markets.”
This scapegoating reminds me of Newsom’s approach to our state’s high gas prices: Blame Big Oil while ignoring that California’s highest-in-the-nation gas taxes, environmental regulations, and government-mandated special fuels formulation are the real villains. Gas prices in California will fall when the government loosens its grip and allows for greater supply, just as our nation’s housing prices will fall when government does the same thing.
Certainly, any new competition for existing supply in an artificially constrained market could marginally increase prices. But the problem is not the new competitors, but the constrained market. California has the nation’s worst home-affordability crisis because it has made it inordinately expensive to build housing. The California Environmental Quality Act requires developers to produce voluminous Environmental Impact Reports for many proposed housing projects. CEQA also incentivizes litigation.
The California Coastal Act subjects housing along our coast (where the bulk of the population lives) to the edicts of another set of slow-growth bureaucrats. Local governments have, via legislation and initiative, enacted urban-growth boundaries and other growth controls. The courts have allowed localities to impose a punitive level of fees. Is it that hard to figure out why our median statewide home prices approach $900,000?
As I’ve recently explained for Governing magazine, California has passed multiple deregulation bills to promote construction, but they haven’t made a dent in the supply problem. That’s in part because the proposals target multi-family projects — and most Californians dream of owning a single-family home. Other states face similar challenges. But the problem in pricey, scenic towns in the intermountain west involve millionaire out-of-staters driving up costs, not corporations. Many of those communities have contributed to the problem with anti-growth policies.
It may be satisfying to blame Big Housing for our affordability problems and to seek easy solutions from our dear leaders, but usually the answer lies in the much harder and mundane work of implementing sensible regulatory reforms.
Steven Greenhut is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.
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