The Private Equity Stakeholder Project (PESP) is once again attacking housing investment, and as is typical of such critiques, relies on highly misleading assertions. In a recent report, the group focuses on housing investment in Michigan. The report tallies upwards of 75,300 housing units across student, manufactured, and multifamily properties owned by private equity firms and casts that figure as evidence of a sweeping “buy-up” from investors, threatening affordability and stability. But a closer look reveals a familiar playbook for critics of housing investment: context-free assertion, vague definitions, and a completely skewed assessment of housing markets.
An Old Playbook
PESP’s attack on housing investment in Michigan follows a tired formula that suggests “Wall Street” is gobbling up housing. Indeed, in this instance, PESP raises the alarm over a diverse set of firms owning on the order of 75,300 housing units in the state of Michigan. It characterizes this ownership as “Private equity’s buy-up of Michigan housing.”
Michigan has 4,670,131 housing units, according to the U.S. Census Bureau’s most recent estimates. That puts private equity’s footprint at just 1.61 percent of the state’s housing stock. Whatever one thinks of any given investor’s holdings in the housing market, characterizing multiple firms’ investments in 1.6 percent of a given market as a “buy-up,” is absurd and should encourage skepticism for any related claims.
This is hardly the first instance of this organization indulging in misleading criticism of private investment. With respect to housing markets, PESP has developed a “Private Equity Housing Tracker,” a tool that has clear flaws. The Tracker aggregates acquisitions across property types and ownership models without specifying whether the holdings are current, how “private equity” is defined, or what baseline comparisons are appropriate. A student housing complex in Ann Arbor is not the same as a manufactured home park in rural Michigan, yet both are lumped together and treated as interchangeable evidence of investor overreach.
This mirrors the broader tendency to mischaracterize housing investment. Perhaps the original sin in this debate is the conflation of investors overall. Indeed, institutional investors make up a scant minority of homebuyers. According to the Urban Institute, the vast majority of housing investors are small and medium sized-investors. Nationally, institutional investors hold less than 2% of all single-family rentals—and private equity accounts for only a fraction of that.
PESP implies that investors’ “buy-up,” of housing raises rents. It defies logic that 1.6 percent of the market can dictate prices. Moreover, empirical studies dispel the claim that institutional ownership is a major driver of rent inflation. Indeed, one 2003 study found reduced rent inflation and increased housing supply due to institutional investment. PESP ignores this literature entirely, substituting cherry-picked anecdotes and headlines for rigorous evidence.
Supply and Demand
None of this is to suggest that the housing market is working perfectly. Shelter inflation disproportionately affects low-income Americans. The cause of this price cost growth is glaring and apparent – a housing shortage on the order of 4.5 million homes – roughly equivalent to all the housing in Michigan. While a number of factors have contributed to this shortage, the single solution is to increase housing supply.
PESP’s prescription for the nation’s housing woes would worsen this shortage, increasing housing burdens on working Americans. Chief among PESP’s housing policies is rent control, which would be especially damaging to both the housing market and renters. A recent meta-analysis of 112 empirical studies on rent control found predictable results: it reduces tenant mobility and housing quality, drives up rents in uncontrolled segments, and discourages the construction of new rental housing. In other words, rent control consistently fails to address housing affordability. PESP’s broader housing policy agenda would similarly harm the functioning of the housing market.
The U.S. needs an approach to housing that can fill a multi-million-home shortage. PESP on the other hand would rather offer misleading analyses that quibble over less than 2 percent of that.