Jun 09, 2013

Blackstone, House Prices and Housing Policy

An editorial in the New York Times today (Sunday, June 9th, 2013) blames Blackstone and other investors for driving up the prices of single family homes and reducing the supply of affordable housing for first-time home owners. While we share the NYT’s concerns that affordable housing is an important matter of public policy, to blame Blackstone for the rise in house prices is wrong and ignores the positive good that private capital plays in the housing market. We want to make the following points:

First, Blackstone is not buying houses in sufficient numbers to make an overall difference in house prices. Blackstone, through its subsidiary Invitation Homes has bought 29,000 homes, representing three hundredths of one percent of all US housing (out of 115 million total units). We have acquired 25,000 of those homes over the past 12 months, representing only four tenths of one percent of home sales during that time (5.6 million total home sales). We have also purchased homes in just 13 of the more than 300 metro areas across the country.

Second, prices of homes are rising simply because the country has not built enough homes. Over the past 4 years, the US has added only 700,000 homes annually (single- and multi-family) on average, while population growth and obsolescence require an estimated 1.5 million units to meet demand.

Third, home prices remain well below long term trends despite their recent increase. New home prices nationally are 37% higher than existing home prices, as opposed to the long term average of 13%. Home prices are still 22% below the long-term price trend from 1951-1999. This is why home prices are rising even in cities where Invitation Homes is not buying, like Detroit and Salt Lake City, where prices have risen 19% and 10% respectively year over year.

Fourth, Invitation Homes' purchases have little to do with first-time home buyers or existing home owners. Invitation Homes only buys post-foreclosure homes, after all attempts at loan modification and other measures have failed. Moreover, these homes are often sold at auction for cash, requiring settlement in three days and often significant capital expenditures in fix-up costs. Few, if any, first time home buyers can do this.

Fifth, foreclosed homes are usually abandoned and a blight on the neighborhood, contributing to a downward spiral of home prices. Cleaning and fixing up these houses and putting in stable long term renters improves neighborhoods and the value of everyone’s home. We have 1,000 employees and 10,000 contractors fixing up the homes we have bought and have to date invested around $500 million in home improvements in addition to the cost of the homes. When neighborhoods improve and house prices stabilize or rise, this is a good thing – fewer homes are underwater  and homes are easier to sell, which is good for both sellers and buyers.

Sixth, increasing the supply of rental housing is a good thing.  Before Blackstone started buying homes, there were already 13 million single family homes for rent in the US. This is an important part of the housing market. Renters should have the opportunity to live in a good neighborhood and send their children to good schools. Invitation Homes offers a national platform providing quality homes and a high level of service. Moreover, our houses rent at affordable rates - average rents per square foot in our single family homes are approximately 30% below comparable multifamily rents.

We welcome this discussion; we are proud of what we are doing in the housing market.

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