Housing affordability has become a flashpoint in the US economy. How can the country be truly wealthy when the bulk of a rising generation can’t afford a home? There’s a shortage of anywhere between 3.7 million and 5.5 million homes in the US, according to estimates from Freddie Mac and the National Association of Realtors, respectively. Both Democrats and Republicans have promised to close the gap, but little has been done over the past decade.
Enter Wall Street. Since the 2008 housing crash, the private investment industry has begun to buy up houses, finance homebuilders and push for more rental housing. Critics warn financial firms are hoping to profit from the crisis, pushing up home prices in some of the country’s biggest cities. Wall Street says it’s found the solution to home scarcity. On this episode of Bullish with Sonali Basak, we take look at both sides.
Private equity giants contend that, with homeownership out of reach for many, renting is going to be a key part of America’s future. While home price appreciation has been a large contributor to personal wealth for baby boomers, high home prices and fixed-rate, low-interest mortgages have closed the door on millennials and Generation Z buyers.
Don Mullen, chief executive of Pretium, said renting allows for financial mobility for many families. “If you look at all the residents in our 90,000 houses, most will never own a house in their life,” he said. “The combination of their FICO scores, the combination of their student loan debt, the way their life turned out for some reason, they will be renters—but they can still raise their children in great school districts.”
Mullen, who spent more than a decade at Goldman Sachs before leaving after the financial crisis to start Pretium, said institutional homeownership still only represents roughly 3% of overall housing stock, and that it will only expand if there’s more acceptance of private capital in the housing industry. He paints a picture of government red-tape that makes it harder to create more housing supply. “It’s easier to build a McMansion in the US than it is to build affordable housing for people,” he argued.
