A month ago in this column, I described how the sale of a manufactured home community in Blaine to a Utah-based investment firm might be an ill omen. The main takeaway was that the Twin Cities’ most affordable housing is increasingly becoming a financial commodity, controlled by national investors. I wrote that “if left unchecked, institutionalized housing threatens to become a modern-day feudalism.”
Since then, a new 48-page report has foregrounded the problem posed by investor-owned single-family rental properties in Minneapolis and St. Paul. Despite the overall wealth of the metro area, there’s no starker sign of its metropolitan segregation of opportunity than the wide gulf between Black and white homeownership rates, the largest in the nation.
“Who Owns the Twin Cities?” was released this month by the Urban Institute policy nonprofit. It analyzed the impacts of the COVID-19 pandemic on the Twin Cities’ longstanding racial gap in home ownership rates. The authors, Yonah Freemark, Eleanor Noble and Yipeng Su, were interested in how the events of 2020 affected that key inequality.
“Looking at the census, the overall trend with the homeownership gap is really negative, going from 30% to 20% for Black home ownership even as the white rate stayed steady,” said Freemark, a senior research associate. “One surprising fact: We did see a large decrease in black home ownership in highly white communities areas outside of the core cities of Minneapolis-St. Paul.”
No other U.S. metro area features such stark inequality around who owns property, with a large gulf between Black and white people. Because owning a home is central to economic and political power, that gap is a key part of regional landscape of structural racism, and explains that lack of the stability and wealth for the majority of Black residents.
According to the study, the last few years before and since the COVID pandemic have seen this problem worsening. Looking at the last five years of data, one key trend is a marked decrease in Black home ownership rates in both majority-white suburban areas and core city neighborhoods experiencing displacement.
The authors use a four-part classification created by the University of Minnesota’s Institute for Metropolitan Opportunity that simplifies analyses of gentrification. Tellingly, the Urban Institute researchers updated an earlier study to include the last few years, finding an increase of concentration of poverty and disinvestment coexisting alongside displacement in other parts of the Twin Cities.
For example, in neighborhoods experiencing displacement, the rate of Black homeownership has declined thanks to what Freemark describes as the Great Recession and its aftermath.
“Those neighborhoods [experiencing displacement] are not only where Black renters are finding it more difficult to afford because rents are going up, but Black homeowners are finding reasons to leave,” Freemark told me.
The report also amplifies the national narrative around how COVID-19 shaped housing. As the pandemic hit, there was a rapid transformation of employment and commuting patterns. That change, along with the slow recovery, exacerbated already existing inequality. Essentially, as a recent Harvard study described, in many U.S. cities there are “two housing markets,” one for the work-from-home wealthy and another for vulnerable service workers, disproportionately people of color.
Conversion of single family homes to rentals
The bulk of the Urban Institute study focuses on the increasing financialization and large-scale conversion of single-family homes into rental property. The trend is another long-term effect of the 2008 foreclosure crisis, which lingered for years in disinvested urban neighborhoods. The foreclosures allowed institutional investors to quickly amass property, an accelerating trend thanks to low interest rates and a flush of investment capital.
A recent working paper [PDF] by University of Minnesota researchers, led by Geography Professor Kate Derickson, makes a similar argument. The authors point out that private equity firms have begun to play outsized roles in the markets for certain neighborhoods, particularly north Minneapolis. One consequence of this institutional ownership is a sharp increase in evictions and fees paid by vulnerable renters.
[image_credit]University of Minnesota[/image_credit][image_caption]Much of the appreciation of real estate value has gone to financial institutions like Front Yard Residential (FYR) in specific neighborhoods, such as north Minneapolis and the Como area southeast, where around 10% of all single-family properties are now owned by institutional investors.[/image_caption]
Since then, many properties have seen sharp increases in value. But instead of going to working-class homeowners, the resulting appreciation of real estate value has gone to financial institutions, especially in neighborhoods like north Minneapolis or southeast Como, where around 10% of all single-family properties are owned by institutional investors.
“The total value of all these rentals increased from $300 million in 2005 to $1.5 billion in 2020; that is huge appreciation,” explained Eleanor Noble. “It has a lot to do with targeting these properties in these specific areas.”
Freemark argues that there are overlapping reasons for the rise in institutionally owned rentals, including their foreclosure status, the ability of investors to pay in cash, a gap around access to knowledge about upcoming sales, and an “economy of scale” in specific places like north Minneapolis’ Folwell neighborhood.
Another corollary of the investor rental trend is that nearly all of the regional growth in single-family home construction was offset by an increase in rental conversions. In other words, the overall total of single-family homes in the Twin Cities has essentially remained flat.
“As a whole, the ownership market among single-family homes is not really growing,” said Noble. “[Instead] the rental market is accounting for vast majority of change of single-family homes in the region.”
[cms_ad:x104]Looking ahead
In general, the Urban Institute study is a red flag for housing policymakers in a metro area already facing stark inequality, and it describes a trend that’s particularly difficult to study. Researchers like Noble point to a key problem with studying the single-family rental landscape: the complexity of financialization. The lack of easily accessed data around property ownership and rental licensing makes it exceedingly time-consuming to keep track of who owns what homes, especially given the rapid pace of mergers and sales of homes-as-assets.
“There are so many shell entities and LLCs [limited liability corporations] and various owner names,” explained Noble. “It makes it really hard to understand exactly what these portfolios and owners look like.”
[image_credit]Urban Institute[/image_credit][image_caption]Black homeownership rates decreased in wealthy white suburbs.[/image_caption]
Without some policy change, it seems clear that the nation’s largest gap in homeownership is not going to disappear anytime soon.
“Local and state governments can be thinking about what they can do to help residents who do want to own their own home, to help people being pushed onto the rental market,” said Freemark. “Both homeowners and renters are vulnerable to change and need to be protected, especially if they are members of historical discriminated classes.”
It is every bit, capitalism turning into creeping Feudalism.
It is the “distant landlord” problem writ large, a siphoning/plunder of local resources to feed investors who live nowhere near here. It is also a deep and dare I say complicit failure of leadership in this country and State, the favoring of consolidation of wealth in every way at the expense of wage earning locals.
It will get worse and it has gotten worse since the pandemic started, which is turning into the greatest transfer of wealth up the social pyramid in the history of the world, even greater than the Great Recession, which was the greatest transfer of wealth up the social pyramid ever. And let us give credit where credit is due, Obama saving the bankers in 2008, indeed giving them and Private Equity the keys to the kingdom, letting 10 million homes foreclose, surely the greatest hit in black wealth in history, initiating a trend that is accelerating, through Trump and now Biden.
How bad is leadership going to let it get? Bloomberg just had an article, America should be a renter nation. So clearly in financial circles, the expectation and the trend is toward ever greater ownership of homes by the “Rentier Class”, the rest of us feudal serfs. Unless government starts representing the people instead of Capital. Which is a warning, because American citizens will not accept being turned into serfs long term. The melting pot is boiling, elite. Figure it out.
If I’m reading the bar graph right: from 2010 to 2018, after the ’08 foreclosures, the gap didn’t change much except for minority white neighborhoods where the gap hardly changed from ’00 to ’10. From ’00 to ’10, I guess the big gap change in >90 white suburbs reflects so-called sub-prime ‘risky’ foreclosures.
This documents the fact that, in large part, there is no “free market” in residential real estate, no matter what your friendly real estate sales agent tells you. We’re dealing with the long-term effects, at least partially intentional (it’s well documented elsewhere, with articles here on MinnPost, in national magazines, and in “The Color of Law,” by Richard Rothstein), of more than a century of housing discrimination and segregation. I might quarrel with some of the details of Mr. Duncan’s accusation (It’s not as if the Obama administration was governing in a vacuum – his choices regarding banking and housing, which I, too, regard as mistakes, were made with the full cooperation and encouragement of Republicans in Congress much more tied to the relevant financial institutions than was Obama at the time – so it’s more than a little one-sided to put ALL the blame on his shoulders.) but not with his overall sentiment.
Oligarchy is not only alive and well, it’s thriving in recent years. So much so, in fact, that I’d argue there’s no reason whatsoever to have even the slightest sympathy for residential developers and, especially, for corporate landlords. Corporate and institutional ownership of housing presents us with a kind of “Alice In Wonderland” surreal environment in which people seeking housing are, or at least could find themselves having to, borrow money from Mortgage Company “A” to purchase a house that’s also owned by Mortgage Company “A,” and if they can’t afford to purchase the property, they can conveniently rent it from …um …Company “A,” which is also the company managing the property as a rental. To suggest that the housing market is not fair only scratches the surface of the inequity built into such a system.
There is a free market in the sense that supply and demand determine price, but in the cities housing supply has been artificially constrained for decades, which is why prices are so high.
I don’t know that you need to have sympathy for residential developers, but in an area where there is a shortage of housing and corresponding high prices, those developers are the literal solution to the problem. The people who build housing are the solution when the problem is not enough housing.
Developers aren’t building out of the goodness of their hearts – they are doing it for profit. So even though the work they do helps the problem, people see developers as the bad guys. And that motivates some people to oppose new housing. Which is totally counterproductive.
Yet it also seems that in many areas that have thoughtful planning and limiting of developers, those homes build more equity. Let’s be honest, how many high density apartments are built in neighborhoods with homes that are 400,000 plus? I don’t mean 6-7 blocks away, but within a block or two. High transient neighborhoods tend to have lower values (not counting downtown). Why can’t a city limit rentals or rentals that are owned out of state. When we talk about maintaining affordable housing, that should include small homes. If cities can state a minimum lot size, why can’t it go the other way that small homes be maintained vs being taken down for a mcmansion. The other issue is having to go up against cash offers or people who pay over appraisal price, not sure how that can be addressed. And finally, for many having to come up with a down payment, especially if you have only lived in rental housing, is a daunting task, especially on a lower income. Most jobs take years before you reach the top of the pay scale. All of it is a tough balance.
Limiting housing to single family homes to drive keep property values up isn’t planning. Its greed. Its white supremacy at is very essence. Its punishing the poor and working class at the expense of the wealthy.
There have been a number of multi-unit developments built in Highland and Mac-Groveland (my neighborhoods) and they haven’t hurt property values. Because the idea that they would is nonsense. Just fear mongering. Some people don’t want “those kind of people” living in their neighborhoods.
Ray,
Yes, Republicans in Congress at the time definitely cared more for Bankers than the 10 million foreclosures, those homeowners they were quite happy to heap shame upon. We could also add moderate Congressional Democrats to that list for not really even pretending to care. And we can certainly add the Federal Reserve and Mr Bernanke, and the $4.5 trillion they printed and handed to the banks and big institutional investors, to buy up the wreckage of those foreclosures and the Great Recession generally with, while millions of people and hundreds of thousands of small businesses were ruined, falling into despair, alcohol and opioid addiction.
But Obama was the President, he could have stood up for people and especially black homeowners, but instead he stomped on “Hope” with his right foot and “Change” which his left.
If St. Paul passes rent control, there is going to be an even bigger surge in private equity ownership of rental property. It will chase a lot of small landlords out if the business.
To underline Bill Lindeke’s point, I live in a part of Minneapolis populated almost exclusively with working-class, tract homes. The vast majority were built in the 1950s, and thus lack the perceived charm of “Craftsman”-style houses of the pre-World War II era, though they are of similar size, and sit on the same-sized 5,000-square-foot lots as their predecessors. In the past couple years, I’ve received a gradually increasing number of mail advertisements from real estate agencies (or individual agents) offering to purchase my house, but in today’s mail there were not one, but two separate offers from institutional / investment entities proposing the increasingly popular (or increasingly widely-advertised, popular or not) “no-fix, no-paint, as-is” opportunity to sell my house.
In 6 years as a planning commissioner on Colorado’s Front Range, I saw many dozens of residential and commercial projects, and in the course of many, many meetings and discussions, I encountered only one developer who had an actual, functioning conscience, and who made a genuine effort to build and market modest housing that was affordable to people making the median income in the community. In other words, someone who was thinking somewhat beyond the boundary of his own bank balance to include the overall health and welfare of the community. With that single exception, what drove those hundreds of discussions and meetings was simple greed. The corporate and/or institutional entities offering to buy my house “as-is” have no interest in housing equity or community stability.
Based on my experience, I’m inclined to agree with Pat Terry about the paradox of development: these are the people who supply the necessary housing, virtually never for reasons beyond simple greed, and because their motivation is usually so transparently self-serving and shallow, they’re often opposed by NIMBYs, and even local government. As Pat Terry says, that opposition is counterproductive, though it’s perfectly understandable. It’s difficult to maintain a society that has inequity baked into it from the very beginning.
Yup, you get it. Let me add a more general observation, though.
Massive inequality IS baked into everything. Greed is what drives a lot of people. Common good, societal good, simply caring about people other than ourselves. – these are not priorities for many people. And this true in most of the world. With the exception of some countries in Western Europe, Canada and a few others, the US is far better off than most of the world in this regard. And historically? Human history is basically thousands of years of war, genocide, famine, slavery, persecution. Human nature sucks and it always has.
So we can complain about how unfair it all is. Or we can work with what we’ve got and change what we can.
You guys make it sound like the situation is hopeless, that humanity is just rotten to the core and all this is inevitable. Dreary.
So, tell me, lawyer and planning commish, is there any legitimate reason at all we Minnesotans couldn’t tax distant private equity out of home and land ownership in Minnesota?
A good question!
There is a lot in that regard to unite the urban core, suburbia and rural. Young prospective farmers are kept out of owning their own, forced to compete with Bill Gates, Private Equity behemoths and Pension management funds, all now the largest holders of agricultural land in America. Neighborhoods across suburbia and the urban core increasingly bought out, a kind of rentier gentrification, locals forced to compete against the same forces buying up cropland.
Billionaires and Private Equity not only have cash on hand to outbid anyone, they have unlimited access to near zero-interest bank loans derived from Fed money printing. With every passing crisis these forces own more of the country and if it continues they will own all of it. And it is not just domestic money, some of it is international.
Minnesota could take a stand and tax the profit right out of it.
Well I do suspect there is something called interstate commerce that may have something to do with it. However, in Mpls. we could suggest that increasing our housing inspectors, and having them bring some heat down on code and ordinance violations, would be very helpful. Today, they seem to be very squishy, (bleeding heart) on applying the same level of ordinance and code enforcement across the city equally,. Ironically that is a form of systemic racism! If they did, the inner city neighborhoods would be less of a target for the institutional investors as the cost of doing business would be higher eating into their profit margins. But the soft heart approach shows the perfect conundrum, afraid to displace 1 rental family, forcing 1500 others to tolerate the lower standards.
As far as world outlook goes, I’m not the one calling for a revolution. Despite my skepticism, I think changes can be made working within the system.
Off the top of my head, I am skeptical that you could limit property ownership of out-of-state, but American companies. Maybe if it got to the point where it was an anti-trust situation, but otherwise it would seem to be unconstitutional.
It seems to me that taxing the Hedge Fund/Billionaire/Corporation/Trust out of land and home ownership would be more working within the system than revolution.
As to the Constitutional question, the idea that these massive institutional investors are the same as a citizen and have the same rights is a constitutional interpretation mostly derived from the imbalance of power in America, and frankly contrary to any human measure of justice.
Better paying job = better house. Please show me qualified potential home owners not getting a home due to race, religion or skin color.
I think the idea is, there are structural impediments that make it harder for minorities to get good paying jobs to buy houses. That, and there seem to be less and less good paying jobs, and wages aren’t keeping up with the cost of home ownership, and regular people are forced to compete with cash rich institutional investors.
Otherwise, yeah, it gets played sometimes to be just about race.
It would seem that some ground floor discussions ought to take place. Like perhaps talk to the folks? Here in Ward 5, our council person has been pushing for more rental less home ownership, go figure. On our block we have 3 Single black ladies, 1 widower, 1 divorcee, 2 black couples, that are home owners, rest are Anglo couples, single white guys, Hmong couples, Latino couples, couple single white ladies, ~ evenly divided.
Easy options for the city, change zoning to only allow a certain % of rental in a given area, or on a block. in a Zip code. Insure that a certain % of every renters monthly payment is set into a fund that can be used in the future to purchase a home, like a 401k, (Caution: this would also be a great place for the bad guys to swindle). Point to remember is that when housing prices rise, house owners of every color also benefit!
“Conversion of single family homes to rentals”
I wish we would stop conflating single family homes with ownership, and multifamily homes with rental homes. A single family home is the type of building, and it can be rented or owned. A multifamily building is a type of building, and it can be rented or owned.