But these culture war debates focus on the wrong issue.
That’s because of a lack of understanding about the broad role asset-management firms play in many aspects of our lives. These huge financial firms, which manage money on behalf of institutional investors such as pension schemes, don’t just buy and sell stocks and bonds. Much of the capital they manage is invested in “real assets”: rental housing, water networks, transportation and other such essential infrastructures. And here, there are frequently poor outcomes for every one of us using these services.
Take housing. In the past couple of years, congressional committees have repeatedly criticized the practices of corporate residential landlords. This is an area dominated by asset managers, who have swallowed up much of the available multifamily and single-family properties, as well as student accommodation, mobile-home communities and seniors’ housing.
Testimony submitted to congressional committees represents part of a growing body of evidence that such asset-manager housing ownership is associated with negative outcomes for tenants — outcomes worse than for those who rent from other types of landlord.
In one study, researchers looked at eviction filings in single-family rentals in Fulton County, Ga., in 2015, comparing filing rates for different landlord types. “Institutional investors” proved “far more likely to pursue eviction than other landlords, even after controlling for property, tenant, and neighborhood characteristics.” Such landlords filed evictions on 20 percent of tenants — a rate more than three times that of “mom-and-pop” landlords.
Nine such institutional-investor landlords were active in Fulton County that year. Five were controlled by asset managers; three others had originally been created by asset managers; only one was not a product of the asset-management industry.
Subsequent studies of landlords’ differential rates of eviction filing in rental markets ranging from Boston to Las Vegas have come to comparable findings.
And similarly deleterious outcomes for users have been documented in relation to asset-manager ownership of a range of other types of real assets in the United States, including transportation and water-supply infrastructures.
Some suggest better regulation. But regulators are routinely captured by the industries they are mandated to supervise, and regulations can be ignored or circumvented. For example, some corporate landlords, including ones controlled by asset managers, continued to file evictions during the coronavirus pandemic despite federal and state eviction moratoriums.
Regulation can certainly help. Rent controls are an important safety guard for tenants, as are rules that strengthen their security of tenure.
But better regulation can be only part of the answer.
Instead, legislators should consider alternative means of reining in the asset managers.
For instance, legislators could prohibit all or some ownership of certain types of real estate assets by asset managers and their investment funds. The industry would lobby hard against this, perhaps saying they help support housing construction, which America badly needs. For the most part, though, asset managers are not interested in supplying new residential stock. In fact, a localized shortage of rental housing is something they actively look for when investing, as it sustains upward pressure on rents. Blackstone President Jon Gray says his firm aims to sell when capital or cranes arrive in a neighborhood.
A second possibility would be for government — nationally, locally or both — to step up as a meaningful investor in housing. In other words, perhaps now is the time for a revival of properly funded public housing? Public housing represents less than 1 percent of American households. But it doesn’t have to be that way.
The United States has a long history of public ownership of major infrastructure elements of other types, across energy, transportation and water. Why not also of housing? Other Western countries are now reembracing public housing as part of a battery of solutions to housing crises of their own.
President Biden’s initial plans for infrastructure investment included a proposal to invest a modest $40 billion in public housing. By the time those plans had been beaten into shape as laws — 2021’s Infrastructure Investment and Jobs Act and 2022’s Inflation Reduction Act — the carve-out for public housing had gone. Reviving such investment would not only reaffirm Biden’s prior commitment to the cause. It could also be the first step toward a more beneficial type of ownership for a broader class of real assets across the country as a whole.
At least in that case, the culture war fight over the role of asset managers would be focused on the right issue too.
