A $60 Billion Housing Grab by Wall Street

by Francesca Mari, NY Times Magazine

March 4, 2020; updated March 5, 2020

Hundreds of thousands of single-family homes are now in the hands of giant companies — squeezing renters for revenue and putting the American dream even further out of reach.

Chad Ellingwood wasnʼt really in the market for a home in the summer of 2006. But when his best friend came across an intriguing listing in Woodland Hills — a bedroom community in Los Angeles Countyʼs San Fernando Valley — the two men decided to visit on a whim.

Entering the property beneath the canopy of a grand deodar, Ellingwood, a big man with a gentle presence, felt as if he had been transported to a ranch house in Northern California, much like one he often visited as a child, all old growth and overgrown greenery — olive trees, citrus trees, sycamores and redwoods. He and his friend meandered past a pond to an inviting teal house built in 1958, “a whimsical masterpiece,” Ellingwood told me. Inside there was a “captainʼs quarters” — a room designed to look like the hull of a boat with a built-in water bed and drawers — and numerous stained-glass windows that the couple who owned it had made themselves. The pièce de résistance depicted a faerie woman with flowing hair whose fingers turned into peacock feathers. Behind the house were a couple of small buildings, one of which was office-size — a meditation “Zen den,” Ellingwood thought. The other was an A-frame, Swiss-chalet-style granny unit above the garage, where the owner displayed a toy train collection.

“The house was not in amazing shape,” Ellingwood said. “It needed some help. But I loved it. I wanted it immediately.”

One of Ellingwoodʼs goals had always been to buy a house by the time he turned 30 — a birthday that unceremoniously came and went six months earlier. When Ellingwood began speaking to lenders, he realized he could easily get a loan, even two; this was the height of the bubble, when mortgage brokers were keen to generate mortgages, even risky ones, because the debt was being bundled together, securitized and spun into a dizzying array of bonds for a hefty profit. The house was $840,000. He put down $15,000 and sank the rest of his savings into a $250,000 bedroom addition and kitchen remodel, reasoning that this would increase the homeʼs value.

Suddenly adulthood was upon him. He married on New Yearʼs Eve, and his wife gave birth to their first child, a son, in April. When his 88-year-old grandfather, an emeritus professor of electrical engineering at the University of Houston, had a bad fall, Ellingwood urged him to move into the house for sale just across his backyard. The grandfather bought the house with his daughter, Ellingwoodʼs mother, and the first thing they did was tear down the fence between the two properties, creating one big family compound. In 2009, Ellingwoodʼs older sister bought a house around the corner.

But shortly after the birth of Ellingwoodʼs second son, in June 2010, his marriage fell apart. He and his wife each sued for sole custody. To pay his lawyer, he planned to refinance his house, and his grandfather advanced him his inheritance. By 2012, Ellingwood had paid his lawyer more than $80,000, and in the chaos of fighting for his children, he stopped making his mortgage payments. He consulted with several professionals, who urged him to file for bankruptcy protection so that he could get an automatic stay preventing the sale of his house.

In May 2012, Ellingwood was driving his two boys to the beach, desperate to make the most of his limited time with them, when he got a call. He pulled over and, with cars whizzing by and his boys babbling excitedly in the back seat, learned that he had lost his house. He had dispatched a friend to stop the auction with a check for $27,000 — the amount he was behind on his mortgage — but there was nothing to be done. Because Ellingwood began to file for bankruptcy and then didnʼt go through with it, a lien was put on his house, his “vortex of love” as he called it, that precluded him from settling his debt. The house sold within a couple of minutes for $486,000, which was $325,000 less than what he owed on it.

In the months after, though, Ellingwood was graced with what seemed like a bit of luck. The company that bought his home offered to sell it back to him for $100,000 more than it paid to acquire it. He told the company, Strategic Acquisitions, that he just needed a little time to get together a down payment. In the meantime, the company asked him to sign a two-page rental agreement with a two-page addendum.

It was clear from the beginning that there was something a little unusual about his new landlords. Instead of mailing his rent checks to a management company, men would swing by to pick them up. Within a few months, Ellingwood noticed that one of the checks he had written for $2,000 wasnʼt accounted for on his rental ledger, though it had been cashed. He called and emailed and texted to resolve the problem, and finally emailed to say that he wouldnʼt pay more rent until the company could explain where his $2,000 went. For more than three months, he withheld rent, waiting for a response. Instead, the company posted an eviction notice to his door.

Ellingwood hired a lawyer and reported to the Santa Monica courthouse on his court date with all of his cashed checks in chronological order.

When the judge called his case, the lawyer for Strategic Acquisitions asked to have a moment to review the paperwork. After marking each of Ellingwoodʼs checks off the accounting ledger, the lawyer concluded that the company had, in fact, erred. Strategic Acquisitions had grown so big so fast that it could barely keep its properties straight.

But it would only get bigger. Strategic Acquisitions was but one of several companies in Los Angeles County, and one of dozens in the United States, that hit on the same idea after the financial crisis: load up on foreclosed properties at a discount of 30 to 50 percent and rent them out. Rather than protecting communities and making it easy for homeowners to restructure bad mortgages or repair their credit after succumbing to predatory loans, the government facilitated the transfer of wealth from people to private-equity firms. By 2016, 95 percent of the distressed mortgages on Fannie Mae and Freddie Macʼs books were auctioned off to Wall Street investors without any meaningful stipulations, and private-equity firms had acquired more than 200,000 homes in desirable cities and middle-class suburban neighborhoods, creating a tantalizing new asset class: the single-family-rental home. The companies would make money on rising home values while tenants covered the mortgages. When Ellingwood reached out to Strategic Acquisitions in the winter of 2013 to buy his house, it was no longer interested in selling. Ellingwood asked again a year later; the company didnʼt reply.

Over the next seven years, Strategic Acquisitions would turn over management to Colony Capital, and Colonyʼs real estate holdings would merge with a series of companies, culminating in the Blackstone subsidiary Invitation Homes, making Invitation Homes the largest single- family-rental company in America, with 82,500 homes at its height — and 79,505 homes after Blackstone sold its shares at the end of last year.

Ellingwood, however, could hardly distinguish among the various L.L.C.s he paid rent to: Strategic Property Management, Colony American Homes, Starwood Waypoint, Invitation Homes. The offices changed cities, downsized staff, hiked rents and imposed increasingly punitive fees. Ellingwood was required to submit his rent in different ways — online, certified mail, cashierʼs check, in person — with slightly different rules, by the 1st, by the 3rd. The leases grew in length from four pages to 18 to 43 as the companies doubled down on strictures and transferred more responsibilities — mold remediation, landscaping, carbon monoxide detectors — onto the renter.

Ellingwood didnʼt know it at the time, but his story was to be the story of millions of renters around the country, the beginning of a downward spiral into the financial industryʼs newest scheme to harvest money from housing.

Wall Streetʼs latest real estate grab has ballooned to roughly $60 billion, representing hundreds of thousands of properties. In some communities, it has fundamentally altered housing ecosystems in ways weʼre only now beginning to understand, fueling a housing recovery without a homeowner recovery. “Thatʼs the big downside,” says Daniel Immergluck, a professor of urban studies at Georgia State University. “During one of the greatest recoveries of land value in the history of the country, from 2010 and 2011 at the bottom of the crisis to now, weʼve seen huge gains in property values, especially in suburbs, and instead of that accruing to many moderate-income and middle-income homeowners, many of whom were pushed out of the homeownership market during the crisis, that land value has accrued to these big companies and their shareholders.”

Before 2010, institutional landlords didnʼt exist in the single-family-rental market; now there are 25 to 30 of them, according to Amherst Capital, a real estate investment firm. From 2007 to 2011, 4.7 million households lost homes to foreclosure, and a million more to short sale. Private-equity firms developed new ways to secure credit, enabling them to leverage their equity and acquire an astonishing number of homes. The housing crisis peaked in California first; inventory there promised to be some of the most lucrative. But the Sun Belt and Sand Belt were full of opportunities, too. Homes could be scooped up by the dozen in Phoenix, Atlanta, Las Vegas, Sacramento, Miami, Charlotte, Los Angeles, Denver — places with an abundance of cheap housing stock and high employment and rental demand. “Strike zones,” as Fred Tuomi, the chief executive of Colony Starwood Homes, would later describe them.

Jade Rahmani, one of the first analysts to write about this trend, started going to single-family-rental industry networking events in Phoenix and Miami in 2011 and 2012. “They were these euphoric conferences with all of these individual investors,” he told me — solo entrepreneurs who could afford a house but not an apartment complex, or perhaps a small group of doctors or dentists — “representing small pools of capital that they had put together, loans from regional banks, and they were buying homes as early as 2010, 2011.” But in later years, he said, the balance began to shift: Individual and smaller investor groups still made up, say, 80 percent of the attendees, but the other 20 percent were very visible institutional investors, usually subsidiaries of large private-equity firms. Jonathan D. Gray, the head of real estate at Blackstone, one of the worldʼs largest private-equity firms and the one with the strongest real estate holdings, thought he could “professionalize” the fragmented single-family-rental market and partnered with a British property-investment firm, Regis Group P.L.C., as well as a local Phoenix company, Treehouse Group. Blackstone “would show up with teams of people and would look for portfolio acquisitions,” recalled Rahmani, who works for the firm Keefe, Bruyette & Woods, known as K.B.W. (K.B.W. sold some shares of Invitation Homes during its public offering.)

Throughout the country, the firms created special real estate investment trusts, or REITs, to pool funds to buy bundles of foreclosed properties. A REIT enables investors to buy shares of real estate in much the same way that they buy shares of corporate stocks. REITs typically target office buildings, warehouses, multifamily apartment buildings and other centralized properties that are easy to manage. But after the crash, the unprecedented supply of cheap housing in good neighborhoods made corporate single-family home management feasible for the first time. The REITs were funded with money from all over the world. An investment company in Qatar, the Korea Exchange Bank on behalf of the countryʼs national pension, shell companies in California, the Cayman Islands and the British Virgin Islands — all contributed to Colony American Homes.
Columbia University and G.I. Partners (on behalf of the California Public Employeeʼs Retirement System) invested $25 million and $250 million in the REIT Waypoint Homes. By the middle of 2013, private-equity companies had raised or spent nearly $20 billion on single-family real estate, and more than 100,000 homes were in the hands of institutional investors. Blackstoneʼs Invitation Homes REIT accounted for half of that spending. Today, the number of homes is roughly 260,000, according to Amherst Capital.

“Thereʼs no way of looking at the ownership of properties and understanding who owns them ultimately,” says Christopher Thornberg, a founding partner of the research firm Beacon Economics. While Invitation Homes and American Homes 4 Rent became publicly traded REITs, as far we know “the big money is still in private equity,” he says. (Progress Residential and Main Street Renewal are two such companies.) “They are completely subterranean. Theyʼve got multiple layers of corporations within corporations within holding companies.” Colony Capital, the Los Angeles-based private-equity firm run by the Trump megadonor Thomas J. Barrack Jr., didnʼt have as much money as Invitation Homes. As a result, it was choosier, says Peter Baer, the

founder and chief executive of Strategic Acquisitions, the company Colony contracted to acquire homes. From early 2012 to 2014, Strategic bought nearly 3,000 homes for Colony. Ellingwoodʼs home was one of the first. Baer told me he was instructed to buy “conventional product” in the price range of $300,000 to $600,000, typically three- or four-bedroom homes in good school districts that would be easy to rent — i.e., the types of homes desirable to first-time home buyers. Invitation Homes sought similar opportunities. (Some REITs developed software to evaluate public records for such factors, as well as for other metrics like proximity to employment hubs and transportation corridors.) Throughout 2012 and 2013, representatives of private-equity firms flew to auctions all over the Sun Belt buying in bulk and squeezing out individual investors.
By October 2012, as Stephen Schwarzman, the chief executive of Blackstone, said, the company was spending $100 million on homes a week.

Strategic would buy the property, obtain possession (often by offering occupants “cash for keys” — a few thousand dollars to move out as soon as possible), rehabilitate the property to Colony standards and then manage it for a year or two until Colony was ready to take over. The deals were so good, in fact, that the gush of inventory lasted only a couple of years; the market recovered, in part because of these investors. “Between Invitation Homes and Colony, that created a bottom for the market in Los Angeles that it hadnʼt seen for the prior two years,” Baer said. Researchers at the Federal Reserve agree.

But even at the time, some saw things differently. “Neighborhoods that were formerly ownership neighborhoods that were one of the few ways that working-class families and communities of color could build wealth and gain stability are being slowly, or not so slowly, turned into renter communities, and not renter communities owned by mom-and-pop landlords but by some of the biggest private-equity firms in the world,” says Peter Kuhns, the former Los Angeles director of the activist group Alliance of Californians for Community Empowerment. Around Los Angeles, the companies scooped up properties in the majority-minority

areas of South Los Angeles, the San Gabriel Valley, the San Fernando Valley and Riverside.
Landlords can be rapacious creatures, but this new breed of private- equity landlord has proved itself to be particularly so, many experts say. Thatʼs partly because of the imperative for growth: Private-equity firms chase double-digit returns within 10 years. To get that, they need credit: The more borrowed, the higher the returns.

When credit was tight after the financial crisis, the acquiring firms, led by Blackstone, figured out a way to generate more of it by creating a new financial instrument: a single-family-rental securitization, which was a mix of residential mortgage-backed securities, collateralized by home values, and commercial real estate-backed securities, collateralized by expected rental income. In 2013, a year after Ellingwoodʼs home was acquired, Blackstoneʼs Invitation Homes securitized the first bundle of single-family rentals — 3,200 of them for 75 percent of their estimated value: $479 million. Those who bought these bonds received 3 to 5 percent in monthly interest until their principal was returned (generally in five years). Blackstone put some of that $479 million toward repaying the short-term credit lines it took out to buy the houses. Because the value of the portfolio of homes had increased since their acquisition, Blackstone could extract much of the difference as cash and buy more homes.

Blackstone issued a second bond package of nearly $1 billion six months later. Other REITs like Colony American Homes quickly began doing the same, rolling homes like Ellingwoodʼs into a $486 million securitization.

With the securitized homes, the rental income now needed to cover not only the mortgage but also the interest payments distributed to bondholders — creating an incentive to keep occupancy and rents as high as possible. In fact, Invitation Homesʼ securitized bond model assumed a 94 percent paying-occupancy rate, putting pressure on the company to evict nonpaying tenants right away.
The growth imperative became even more urgent as the REITs began to go public. Since a rebound in the real estate market made acquiring new properties more expensive, companies looked for growth from their tenants: i.e., by raising rents, cutting down operating costs and maximizing efficiencies. In a 2016 fourth-quarter earnings call, Tuomi, the chief executive of Colony Starwood (formerly Colony American), declared that “not getting every charge that you are legitimately due under leases” — termination fees, damage fees and the like — is “revenue leakage.” In 2016, Colony made $14 million on fees and an additional $12 million on tenant clawbacks, like retaining security deposits, says Aaron Glantz, author of “Homewreckers,” a book on the single-family-rental industry.

“What is really dangerous to tenants and communities is the full integration of housing within financial markets,” says Maya Abood, who wrote her graduate thesis at the Massachusetts Institute of Technology on the single-family-rental industry. “Because of the way our financial markets are structured, stockholders expect ever-increasing returns. All of this creates so much pressure on the companies that even if they wanted to do the right thing, which thereʼs no evidence that they do, all of the entanglements lead to an incentive of not investing in maintenance, transferring all the costs onto tenants, constantly raising rents. Even little, tiny nickel-and-diming, if itʼs done across your entire portfolio, like little fees here and there — you can model those, you can predict those. And then that can be a huge revenue source.”

As Tuomi put it in 2016, “Ancillary revenue is the first kind of low-hanging fruit.” Ellingwood was soon paying more in rent than he had paid for his first and second mortgage combined. When he owned the house, the most he paid was $3,300 a month. Strategic and later Colony American increased his rent from $3,500 to $3,800 in just a few years. (Strategic did not respond to questions about Ellingwoodʼs tenancy or that property.) In August 2017, Waypoint increased it again to $4,150 (a 9.2 percent year- over-year increase — nearly five percentage points higher than the already-burdensome city average). And that didnʼt include fees. When Colony took over from Strategic, it introduced an online payment portal.

All tenants were required to use it — and using it cost a $121 “convenience fee.” “It was anything but convenient,” Ellingwood told me. After submitting the payment, which went to the national office, the tenants, he told me, were obligated to call the local office to report it.
Once, a landscaping charge appeared on his bill, even though no one was landscaping his property. Three months later, a worker showed up at his house for the first time and asked him to sign a work invoice. Ellingwood refused. (He was able to get the fee removed.) But the fees, many of which were outlined in his lease, kept coming: lawyer fees, utilities conveyance fees, pipe-snaking fees. In 2015, Colony emailed about a lease renewal, asking him for a new security deposit and inquiring whether his appliances had been included in his original lease, as if to suggest he should be paying a fee for them. “I bought these appliances,” Ellingwood told me. He emailed back: “I have receipts.”

There were also late fees, with which Ellingwood became all too familiar. In 2013, the economy was still weak, and his income was irregular. The bills, however, didnʼt stop: $600 a month just for water, power and gas. Then there was child support. He took on odd jobs as a fence builder and an insurance-claims inspector. Sometimes his mother, Dana, who was laid off from an insurance company in 2008, would buy a big cut of meat and ask Ellingwood and his girlfriend, a caterer, to cook it for her, so they could all share it and Ellingwood wouldnʼt feel like an object of charity.

One of the first times he was late, a notice of eviction was posted to his door. He paid the rent — and the $50 late fee. But three days later, there was another pay-or-quit notice — this time because he hadnʼt paid a $35 delivery fee for the late-fee notice. The second eviction notice, in turn, incurred a second $35 delivery fee. Over the years, he amassed a stack of late fees, more than 40 of them. “Itʼs embarrassing,” Ellingwood told me, handing over the stack. Three-quarters of the time, he was late because he didnʼt have the money in the bank. One-fourth of the fees were incurred because he was frustrated; he wanted to put pressure on a company that he felt invested nothing in the upkeep of its properties.

After taking Ellingwood to court in Santa Monica in 2013, his landlords filed for eviction two more times over late payments. Struggling with the almost 10 percent rent increase, Ellingwood was late but caught up a couple of weeks before his court date. He paid not only the rent, but
$200 in late fees, $70 in notice fees and a $710 legal fee. A tenant is charged the moment Waypoint or, later, Invitation Homes emails its lawyers to initiate an eviction, whether the companyʼs lawyers do work or not. (Kristi DesJarlais, a spokeswoman for Invitation Homes, says that the company follows “local laws and practices on all legal proceedings.”) According to Ellingwood, Waypoint thanked him and told him he didnʼt need to appear in court. Waypoint, however, never canceled the hearing. Its lawyers showed up, and when the judge marked Ellingwood absent, Waypoint was granted a summary judgment for eviction. Waypoint sat on that judgment until the next time Ellingwood was late: Then the company didnʼt bother to post a three-day eviction notice; Ellingwood said it sent the sheriff. Fortunately, Ellingwood had learned from his high-conflict divorce to document everything, and after the sheriff reviewed his emails with Waypoint, he told Ellingwood to get a lawyer.

For seven and a half years, meanwhile, Ellingwood watched as his home began to crumble. He kept up what he could: He tended his garden, and he made small fixes like snaking the pipes or repairing a short. But he couldnʼt tackle the bigger things. The exterior paint peeled and chipped, and the wood underneath began to rot. After a leak in the bathroom, mold grew on the tiles. Invitation Homes would agree only to crudely patch up the walls where the leak was — with Ellingwoodʼs own supply of drywall. He had to decide whether to live with the mold or spend the money to fix it himself. He invested a few thousand dollars in a new bathroom floor. Other leaks, however, sprang up. It turned out that the homeʼs water pipes were rusted. It took nearly five years for the company to fix an eight-foot section. The shower in a second bathroom continued to leak into the darkroom, ruining the vintage photos shellacked into the walls and ceilings. The company slapped grout over the cracks. The shower still leaks. “Good thing itʼs not your main shower,” a representative told him. (DesJarlais declined to comment on Ellingwoodʼs situation but said that some tenant complaints “date back to previous companies that no longer exist, and in no way should it be suggested that their practices are applicable to the current operations of Invitation Homes.”)

The company certainly didnʼt seem to care about the floodplain at the back of Ellingwoodʼs property. During El Niño, the backyard became a small sea that lapped at his house. The wooden stairs to his granny unit began to split from the side rails. He propped them up with two-by-fours. After two years of Ellingwoodʼs duly noting the damage and the risks it presented, Invitation Homes asked him to fill out an online work order. Four different workers came to give quotes. “They were looking for the cheapest repair,” Ellingwood said.

Finally, the company picked a man who just wedged new planks on either side of the steps so that they would reach the side rail and bolted everything together. Ellingwood took me out back and poked the base of the steps. The wood crumbled like a soggy graham cracker.

Ellingwood and his girlfriend, Amber Linder — who lived with Ellingwood and helped with his rent — had no idea they werenʼt the only miserable Invitation Homes renters until 2017. During a trip to Pittsburgh, Ellingwood saw a television news program with a report about the poor conditions of the companyʼs rental properties. Through a Google search, he found a private Facebook group of disaffected tenants, now called Tenants of Invitation Waypoint Homes. “Thatʼs when I realized this was not just one small company — it was a national corporation,” Ellingwood told me.
Ellingwood was afraid to join the group, certain that it had been infiltrated by company spies. But by March 2018, he was frustrated enough to ask for membership and discovered that there were more than 1,200 people with complaints just like his. Reading through the comments brought relief. He was especially inspired by the groupʼs organizer, Dana Chisholm. “She knew her stuff,” Ellingwood told me.

On yet another sunny Los Angeles day in late April, I drove inland to meet Chisholm at a Panda Express on the side of Interstate 5. She is an anti- abortion, Trump-loving conservative Christian who prays every day for the demise of Invitation Homes. She wore a purple shirt, a flowing purple skirt and a silver cross toe ring. “Send” and “Me” — representing Isaiah 6:8 — were tattooed on her heels. “I am the biggest Trump supporter you are ever going to meet,” she told me. “But this is one area heʼs furiously failing at. Itʼs not like he doesnʼt know.” Stephen Schwarzman, Blackstoneʼs chief executive, was once the chairman of the presidentʼs economic advisory council and remains a close adviser. The chief executive of Colony Capital, Thomas Barrack, was not only among the largest donors to President Trumpʼs campaign but also served as chairman of his inaugural committee. Steven Mnuchin, now the Treasury secretary, bought the toxic debt of the failed California bank IndyMac with several other investors and, as chief executive and chairman, renamed the bank OneWest and then foreclosed on more than 35,000 Californians, reaping government subsidies on nearly every one.

In June 2016, Chisholm told me, she rented a tan-colored ranch house in La Mirada from Waypoint Homes. The house had some problems — the dishwasher was broken, and the faucet in the kitchen barely worked. But her leasing agent promised to have those things repaired, so she signed:
$3,000 a month plus a $100 pool-service charge. After moving in, she realized the pool was losing an inch and a half of water a day — it was leaking into the ground — so she deducted the pool fee from her next monthʼs rent. She also asked to have the smart lock that came with her home disabled and deducted the monthly $19.95 charge. In mid-July, she got a call from her leasing agent asking her why he was being asked to show her house again. “That was his way of giving me a heads-up,” Chisholm told me.

She looked at her bank account and realized that her rent check hadnʼt been cashed. Waypoint told her that it hadnʼt been received. In August, she got an automated email from Zillow that inexplicably advertised her home. An Invitation Homes employee emailed to tell her that she would be sent into automatic eviction but that she shouldnʼt worry, they wouldnʼt act on it. By then the refrigerator had broken, rats ate the bananas on her kitchen counter and two-inch cockroaches climbed the wall into in her granddaughterʼs crib. (Waypoint authorized only two exterminations per year.) Chisholmʼs August rent check hadnʼt been cashed, either. She was told it hadnʼt been received. She begged the office manager to visit her house and observe the problems firsthand.
According to Chisholm, the manager sat with her for hours and broke down in tears. “You donʼt know the environment that Iʼm working in,” Chisholm says the office manager told her. “Your property manager is lying to you. She has all your checks. Theyʼre stacked up on her desk.” She explained why: By claiming not to receive the checks or by refusing to cash them on the grounds that “they werenʼt for the full amount owed” (Chisholm was withholding the pool fee until the problem was fixed), the company could still evict her for nonpayment. The manager promised to send the checks to Chisholm via certified mail so that she would have proof of payment. And she did. (The manager did not reply to requests for comment.) While Invitation Homes declined to comment on the experiences of any individual tenants, it said in a statement, “We arenʼt always perfect, but we do work every day to provide the best possible experience for our residents.”
In February 2017, Chisholm started her first Facebook group. The only person she knew to invite was a fellow tenant of Waypoint Homes, who found her on Yelp. (He wrote to her, bewildered that she had written a positive review of the company; she had done so the month she moved in because a maintenance worker said his bonus depended on it.) But the group grew, gaining hundreds of members in the first few months.

Suddenly she was fielding messages and phone calls from tenants around the country — particularly in Chicago; Phoenix; Atlanta; Florida; Los Angeles; Riverside, Calif.; and Las Vegas, the places where private equity had invested most heavily.

She started to notice patterns. False advertising was one of them. Helena Abonde, a Swedish woman, began to post frequently to the group. In May 2017, she had to leave North Carolina in a hurry after living with her cousin didnʼt work out. She decided to return to her old job in Los Angeles and began looking online for housing. She spotted a listing on Zillow — a property in Van Nuys owned by Invitation Homes — with central air-conditioning and a fenced-in yard, perfect for her two beloved dogs. She called the listed number and was cautioned that houses were flying off the market and that if she didnʼt sign a lease and send the first two monthsʼ rent and a security deposit — a total of $6,000 — she would miss out on it. Abonde packed up her car, and as she was driving across the country with her dogs, the leasing agent, Alisa Cota, sent her a 42- page lease. At a rest stop in Albuquerque, Abonde signed it and emailed it back.

When she arrived at the house, no one was there to meet her; instead, Cota sent her the code to the smart lock. Her dogs were panting in the May heat of the San Fernando Valley, and the house was boiling inside. Abonde couldnʼt find the air-conditioning controls and called Cota, who looked up the house and told her that the home didnʼt have air-conditioning and that she had signed a lease agreeing to the house as-is. If she broke it, she would have to pay two monthsʼ rent after giving notice — $4,800. (Cota apologized to Abonde after quitting her job at Invitation Homes.)

Another common practice was charging burdensome fees. For each utility bill received by Invitation Homes — many single-family-rental companies, or S.F.R.s, put utilities in the companyʼs name and then charge the utility back to the tenant — the company levies a $9.95 “conveyance” fee. The company also piled on landscaping fees, $100 monthly pool fees, a $50 monthly pet fee (“pet rents” were up 300 percent, Invitation Homes announced in 2017, accounting for additional gains of $1.5 million) and automatic enrollment in smart-lock services for
$18 to $20 a month. The first month of the smart-lock service was free, so that by the time the charge appeared on the rent bill, it was too late to opt out, per the nearly 40-page lease.
And then there were the fees people were charged when they moved out. In Lancaster, Calif., Invitation Homes billed Amy Feng for new doorstops, blinds, toilet-paper holders and shower heads. She was also billed to replace carpet that was 10 years old. In Phoenix, Serena and Latisha Rich lived with a broken sink and leaking pipes despite multiple requests for repair; eventually, they decided to move out. They said no one from Invitation Homes ever arrived for a walk-through, so they took time- stamped photos to prove they left the home clean. Weeks later, Colony Starwood billed them for more than $5,000 in damages for bedroom doors split in half and broken furniture and fixtures. The Riches took Colony Starwood to court themselves and won.
Of all of Invitation Homesʼs practices, those that most alarmed Chisholm involved habitability issues — poor maintenance and lack of inspections. In Georgia, as reported in The Atlantic last year and documented in a Facebook video, Rene Valentin and his wife and their two young children rented a home with defective piping. Their home flooded six times. Once, the water ran six inches high. They say Invitation Homes would pay neither for the removal of the mildewed carpeting nor for the family to stay in a hotel. (When contacted, the Valentins could not comment for this article because they were in negotiations with Invitation Homes.)

As moderator of the group, Chisholm began taking it upon herself to intervene on behalf of tenants. She would email blast Stephen Schwarzman, the chief executive of Blackstone; Charles Young, the chief operating officer of Invitation Homes; Mark Solls, the chief counsel of Invitation Homes; and various Blackstone officials who were members of the Invitation Homes board. Often, the local office would suddenly respond to the issue within hours. (DesJarlais, the spokeswoman for Invitation Homes, says that if this happened, it was a coincidence.)

So when William Scepkowski, a Marine veteran, sent Chisholm pictures of his young daughterʼs pink, rashy back, a result of her prolonged exposure to toxic mold, Chisholm began emailing. According to Chisholm, Scepkowski couldnʼt get anywhere with the local office. He moved his family to a hotel and at 9 p.m. on a Friday cold-called Schwarzman at his office in New York and left a message. The next day, Chisholm says, he got a call from Rob Harper, an Invitation Homes board member and Blackstone employee, who asked Scepkowski how Blackstone could right the situation. Chisholm says Scepkowski eventually settled for enough money to put a down payment on a house of his own. (As part of the settlement, Scepkowski signed a nondisclosure agreement, so he couldnʼt comment for this article. Harper declined multiple requests for comment.)
Not long after, in late August 2018, Chisholm told me she got a call from a number she didnʼt recognize. “Hi, Dana. This is Mark Solls” — the chief counsel of Invitation Homes. Dana waited, then laughed. “Charles and I want to fly out to meet you Friday,” she says he said, referring to Charles Young, the chief operating officer. Solls asked that she not tell her Facebook groups, and she agreed — not, she says, because they were asking her to but because she didnʼt want to alarm or excite them.

Chisholm spent the intervening days in fear. “These big, global mega- landlords, theyʼre flying out within days just to meet with me,” she told me. “It was overwhelming. I was scared, scared, scared, scared.” She got a manicure to soothe her nerves and asked her church group to pray for her. On Friday morning, she met Solls and Young where they were staying, at the new Marriott M Club in Irvine, paying $23 for parking.

“What do you want from us, Dana?” Young said, according to Chisholm. “And I said, ‘Um, I want you to admit that you donʼt have a 99.8 percent satisfaction rate!.” — something the company claimed.

“I wonʼt say those words,” Young said slowly, according to Chisholm. “I will say we have room for improvement.”

According to Chisholm, Solls and Young told her that they wanted Chisholm to change the narrative about their company. She told them that changing the narrative meant changing what they were doing. At one point, Chisholm said, “If you want to change the narrative, resolve my issue right now.” In April 2017, she had settled the eviction suit that they filed against her. She paid $11,000 and got her $5,000 security deposit back. For the entire year, on a house that was leased for $3,000 a month, she paid only $9,000. But she insisted that it didnʼt make up for the pain and suffering she was confronting every day. “I said something preposterous,” she told me of the meeting with Solls and Young. She asked to be given her house and millions of dollars for a tenantsʼ fund. “Mark said: ‘We canʼt offer you the house. You know that.ʼ ‘I donʼt know that, Mark,.” she said. “We canʼt give you that house,” Young said, according to Chisholm, “but we can give you enough money to buy a house.” “Mark shot him a look like I thought it was going to kill him right there!” Chisholm told me. When they left, Young and Solls promised to call Chisholm on Monday to build trust.

Over the weekend, Chisholm thought more about how Invitation Homes could redeem itself, and for hours she worked on a proposal to create a victimsʼ fund that wronged tenants could access in the event that, say, they needed a hotel room because their house flooded for the sixth time. (Chisholm has at times solicited money from group members to support tenant actions against the company.) She thought $25 million was fair — the same amount Schwarzman had announced he was donating to his high school. And she wanted her nonprofit to have full control of that money and how it was spent. When Solls and Young called as promised, she mentioned her proposal to them and then followed up with an email.

The next day, Solls called while Chisholm was driving. Her proposal would cost way too much, he said. Instead, he offered her a consulting job contingent on her changing the story about Invitation Homes on her Facebook groups: $10,000 a month, with a $50,000 bonus and another $50,000 in six months “if she behaved — well, those are my words not his,” Chisholm told me. “It was an insult. I would have loved to consult with them if they were willing to change.” Solls and Young declined to comment on their conversations with Chisholm. But DesJarlais, the Invitation Homes spokeswoman, wrote in an email: “We were hoping to engage in a constructive dialogue with Ms. Chisholm about whether she could offer helpful guidance. In the end, we could not make it work. But we respectfully disagree with how she characterized those conversations.” Since late 2018, Chisholm has been consulting for other institutional investors instead.

The worst thing about Invitation Homes, in Chisholmʼs opinion, is the way they create fear in their tenants. “You either pay these fees and settle with us or weʼll make you homeless, or weʼll ruin your credit with an eviction,” she said of Invitation Homesʼ practices. “That is the threat renters live under!”

Invitation Homes and Blackstone insist that they have had no impact on the housing market — other than to set what they describe as a “higher standard for quality across the board.” Company associates repeatedly emphasized that Invitation Homes owns less than 1 percent of the nationʼs single-family-rental housing and that it has invested an average of $25,000 into each home it owns. The company says its self-reported statistics speak for themselves: a 96 percent occupancy rate and a 70 percent renewal rate. And in general, Invitation Homes says, renters stay in its houses an average of three years.

But there are other factors to consider. One is the demographics of the single-family renter. According to Invitation Homes, its average tenant is 39 years old, and tenantsʼ average household income is about $100,000 a year (which, in expensive rental markets like California, is solidly middle-class). About 60 percent of tenants have one or more child at home, half have a college education or higher and 56 percent have a pet (“They pay a special extra fee for that,” DesJarlais told me). According to the credit-rating agency D.B.R.S. Morningstar, the tenants of Colony, which Invitation Homes absorbed in 2017, were “typically former homeowners who often have families and ties to the neighborhood, including a preference for the local school district.”

And so, having bought the bulk of foreclosed homes in certain desirable neighborhoods — many of which didnʼt have rental inventory before the crisis — these companies now have what Suzanne Lanyi Charles, a professor of urban planning at Cornell, characterizes as oligopolistic power over some local housing markets. Institutional investors own 11.3 percent of single-family-rental homes in Charlotte, 9.6 percent in Tampa and 8.4 percent in Atlanta. (And as new landlords, they often control a majority of open listings, “which is what renters care about,” Daniel Immergluck pointed out to me.)

Edward Coulson, director of the Center for Real Estate at the University of California, Irvine, found that if single-family-rental ownership in a neighborhood went up by 10 percent, property values went down by 4 to 7 percent. Nevertheless, across its 17 markets, Invitation Homesʼ rents increased an average of 4.1 percent from 2018 to 2019. In no market did the companyʼs rents decrease (though in Nashville, the company, which owned more than 700 homes there, couldnʼt reach the scale it wanted once the market recovered and so shed all of them). Despite concerns — 698 complaints and an alert on its Better Business Bureau profile — demand has remained strong. “Thereʼs a lack of affordable housing in the market on the for-sale side,” Rahmani told me. “Home builders are facing challenges to build entry-level homes. Millennials are choosing to rent longer. There are issues with finding a down payment. There are elevated levels of student debt. Changes in the work force, in terms of how long their job will last and needing to be mobile. So sinking a lot of capital into a house might be something millennials choose to delay.”

Besides former homeowners intent on maintaining an address in a certain school district, typical tenants, according to a former employee, are those who need to find a home quickly. In certain areas, Invitation Homes also seems to rent to a higher-than-average number of minorities. In a small survey of 100 tenants in Los Angeles County, Maya Abood found that 35 percent identified as black or African-American, 39 percent identified as Latino, 23 percent identified as white and 4 percent identified as Asian. According to Abood, neighborhoods in Los Angeles where at least 15 percent of homes are owned by the largest single-family-rental companies have an average black population of 30 percent. Neighborhoods where no homes are owned by large single-family-rental companies have an average black population of only 6 percent. Evictions are often higher in majority-minority neighborhoods. According to Elora Raymondʼs research at the Atlanta Federal Reserve, nearly a third of all Colony American tenants in Georgiaʼs Fulton County received an eviction notice in 2015. One of the strongest predictors was the concentration of African-Americans in their neighborhood.

Moreover, Invitation Homesʼ profits are directly tied to focusing on places with population growth and critical housing shortages. California — which is experiencing a well-known housing crisis — accounts for 16 percent of Invitation Homesʼ portfolio and is one reason it has stronger returns than American Homes 4 Rent, according to analysts at K.B.W.

Apparently untroubled by these developments, Fannie Mae guaranteed a $1 billion 10-year fixed-rate loan to Invitation Homes in 2017, which was securitized by Wells Fargo. The loan is collateralized by 7,204 Invitation Homes rentals. It was the first single-family-rental loan guaranteed by a government-sponsored entity, and Freddie Mac followed suit. “Why is the taxpayer backing up loans so that they can get reduced interest rates?” said Eileen Appelbaum, co-director for the Center for Economic and Policy Research. “Why do we shift the risk to the U.S. taxpayer and create a huge windfall?” When I remarked that Fannie Mae said it wasnʼt going to back any more loans, she laughed. “They wonʼt have to do it again! This is now an established industry.” If something goes wrong, Invitation Homes is on the hook for 5 percent of losses; the government is on the hook for the remaining 95 percent. So far, more than 10 S.F.R. companies have securitized rental debt, generating 70 securitizations totaling some $35.6 billion.

At the same time, Invitation Homes continues to streamline, centralizing its operations in Dallas and outsourcing much of its customer service to call centers in Romania. According to K.B.W., in-house maintenance crews cover more than 50 percent of repairs; they are salaried, which means less incentive to increase the scope of projects. Eighty percent of prospective tenants view homes via self-show, punching a code into the smart lock at a designated time. Last year, Invitation Homesʼ stock was up nearly 50 percent.

In 2017, Blackstone earned more than $1.5 billion on the I.P.O. of Invitation Homes. And since then, now that median housing-sale prices have fully rebounded — up 46 percent since 2011 — Blackstone has realized even greater gains by exiting the business entirely, shedding its remaining 41 percent ownership in a series of billion-dollar second offerings from last March to November. A majority of its shares were bought by mutual funds like Vanguard and J.P. Morgan. According to The Wall Street Journal, the exit earned Blackstone $7 billion, more than twice what it invested. Blackstone, meanwhile, is moving on — to e-commerce warehouses, mobile homes, student housing and affordable housing around the world.

Abood told me that “the easiest thing for people to understand is the most sensationalized: ‘Invitation Homes is a horrible landlord, and people are mad,.” she said. “Yeah, thatʼs a story. But the harder story to make people care about is the way that all of our lives are starting to be intertwined into these financial markets that most of us have no investment in. The financiers are making so much money that depends on our everyday debt and expenses. Our mortgages, our rents, our car loans, our student loans. And all of that is dependent on low- and moderate-income people.”

Whenever Ellingwood passed by his front door, he was filled with anxiety, afraid of what he might find posted there. It was mid-April, and he was waiting for a late paycheck and was again past-due on his rent. He couldnʼt put off paying any longer, so he called his best friend, Mitch Glaser, with whom he was building an organic-fertilizer company, and asked for a loan of $900.

Glaser, whose home had nearly been foreclosed on in 2012, didnʼt hesitate. “He could be in my position, and I could be in his,” Glaser told me. Ellingwood hopped in his truck and drove an hour to West Los Angeles to pick up the money. Then he drove to the Invitation Homes office in Pasadena, stopping at a Wells Fargo to get a cashierʼs check — the only type of payment the company would accept. Nearly two hours after leaving his house, Ellingwood walked into the small Invitation Homes office. No one was at the front desk, so he rang a bell.

Finally a woman appeared, and Ellingwood handed her his check. It matched the ledger she saw on her screen. Still, she said, “Let me make sure it hasnʼt gone up,” and then started messaging her colleague, Ellingwoodʼs property manager, on her phone. “This is what the ledger shows,” she mumbled as she typed the words. “Please confirm.” Emblazoned across the wall, in big plastic letters, was the motto: “Together with you we make a house a home.”

DesJarlais, the Invitation Homes spokeswoman, later repeated this motto to me. “This isnʼt just an in-and-out kind of thing,” she said. “We love our residents.” The company, she told me, is looking to grow in its current markets. “We call that infill — so weʼre going to fill in in those concentrated suburban areas that weʼre already in … where we already have geographic heft.” The company, she said, is buying more of what their customers want: 1,700- to 2,400-square-foot homes. A former worker told me that in certain markets, the company is selling off the larger homes that are more challenging to rent. When I asked DesJarlais whether “infill” purchases affect regional housing affordability, she replied, “The word ‘affordableʼ is kind of a subjective term.” Later, she emailed to say, “Our minimal percentage of all purchases in our markets canʼt possibly impact affordability — the numbers just donʼt hold up.”

At the end of June, Invitation Homes emailed Ellingwood his lease-renewal offer, extending an “early-bird special” with a monthly rent of $4,351 for the first 12 months and $4,569 for the second 12 months if he signed his lease within 10 days. The new 39-page lease made him responsible for things that were typically the purview of landlords: He was financially liable if the home became infested with bedbugs; the company was generally not liable if he sustained property damage, injury or death from exposure to mold. It also said that if Invitation Homes had to take him to court again, he agreed to leave once and for all.

Ellingwood asked the company to show some compassion and not raise his rent. But he had no law to lean on. In the fall of 2018, when California voted on Proposition 10, a bill that would enable local jurisdictions to determine whether rent control or rent stabilization should extend to single-family rentals, the No on Prop. 10 campaign raised $65 million, much of it from publicly traded REITs — more than two and a half times the amount raised by the propositionʼs supporters. Blackstone contributed $5.6 million to the No campaign, and Invitation Homes contributed nearly $1.3 million. The measure was roundly defeated. But this fall, California legislators passed A.B. 1482, a measure that limits rent increases to 5 percent plus inflation for the next 10 years. For the first time in the stateʼs history, this rental cap applies to single-family rentals owned by corporations or institutional investors.

When Ellingwood didnʼt hear back regarding his rent request, he followed up, and after two weeks, the renewal coordinator for Southern California West cut his rent increase in half. Ellingwood didnʼt agonize over whether to agree; he signed almost immediately. The only nightmare greater than renting his home from Invitation Homes was not renting his home from Invitation Homes. Even if he had the money to front a move, which he didnʼt, his credit wasnʼt good enough to clear a rental application in a housing market as competitive as Los Angelesʼs. Moreover, deep down, he believed he had been wronged — first when his house went to auction and then again when Strategic reneged on its promise to sell it back to him. If only he could find the right lawyer, or prove a nuisance long enough, he would be able to get the house back.

“Theyʼll want to sell it,” Ellingwood told me at his kitchen table late one night. “Or Iʼll fight them to the point where they want to sell it back to me.” Nevertheless, knowing that he would not be forgiven if sent to eviction again, I asked Ellingwood if he was worried. “Of course,” he said. “Iʼm living on the razorʼs edge.”

He paused. “But it doesnʼt make sense for them to lose me. In fact, that should make me their favorite customer. They live off of their fees.”

If You Sell a House These Days, the Buyer Might Be a Pension Fund

by Ryan Dezember, The Wall Street Journal

April 4, 2021

Yield-chasing investors are snapping up single-family homes, competing with ordinary Americans and driving up prices.

A bidding war broke out this winter at a new subdivision north of Houston. But the prize this time was the entire subdivision, not just a single suburban house, illustrating the rise of big investors as a potent new force in the U.S. housing market.

D.R. Horton Inc. built 124 houses in Conroe, Texas, rented them out and then put the whole community, Amber Pines at Fosters Ridge, on the block. A Whoʼs Who of investors and home-rental firms flocked to the December sale. The winning $32 million bid came from an online property-investing platform, Fundrise LLC, which manages more than $1 billion on behalf of about 150,000 individuals.

The countryʼs most prolific home builder booked roughly twice what it typically makes selling houses to the middle class—an encouraging debut in the business of selling entire neighborhoods to investors.

“We certainly wouldnʼt expect every single-family community we sell to sell at a 50% gross margin,” the builderʼs finance chief, Bill Wheat, said at a recent investor conference.
From individuals with smartphones and a few thousand dollars to pensions and private-equity firms with billions, yield-chasing investors are snapping up single-family houses to rent out or flip. They are competing for houses with ordinary Americans, who are armed with the cheapest mortgage financing ever, and driving up home prices.

“You now have permanent capital competing with a young couple trying to buy a house,” said John Burns, whose eponymous real estate consulting firm estimates that in many of the nationʼs top markets, roughly one in every five houses sold is bought by someone who never moves in. “Thatʼs going to make U.S. housing permanently more expensive,” he said.

The consulting firm found Houston to be a favorite haunt of investors who have lately accounted for 24% of home purchases there. Investorsʼ slice of the housing market grows — as it does in other boomtowns, such as Miami, Phoenix and Las Vegas — among properties priced below
$300,000 and in decent school districts.

“Limited housing supply, low rates, a global reach for yield, and what weʼre calling the institutionalization of real-estate investors has set the stage for another speculative investor-driven home price bubble,” the firm concluded.

The bubble has room to grow before it bursts, according to John Burns Real Estate Consulting. But it is inflating fast. The firm expects home prices to climb 12% this year — on top of last yearʼs 11% rise — and increase at least 6% in 2022, a period of appreciation reminiscent of 2004 and 2005.

That boom was different, fueled by loose lending that enabled individuals to speculate on home prices by racking up mortgages they could repay only if home prices kept climbing. The money party ended a few years later when home prices stopped rising. The ensuing crash wiped out $11 trillion in U.S. household wealth and brought the global financial system to the brink of collapse.

Financiers stepped in starting in 2011 and gobbled up foreclosed homes at steep discounts. They dispatched buyers to courthouse auctions with duffel bags of cash. Smartphones and tablet computers — new then — enabled them to orchestrate the land grab and manage tens of thousands of far-flung properties thereafter.

They dominated the market for a few years, accounting for about a third of sales in some markets and setting a floor for falling prices. There wasnʼt much competition. Stung by losses, banks made it harder for regular home buyers to get a mortgage. Millions of Americans were underwater, owing more on their mortgages than their homes were worth, and unable to move.

Home-rental firms, including Invitation Homes Inc. and American Homes 4 Rent, thrived. Renting suburban homes proved so profitable that landlords hit the open market and added properties at full price once foreclosures dried up. Many now build houses explicitly to rent.

The coronavirus pandemic sparked a race for home-office space and yards. Occupancy rates reached records and rents are rising with home prices. The ecosystem of companies that service, finance and mimic the mega landlords is booming.

Burns counted more than 200 companies and investment firms in the house hunt: computer-assisted flipper Opendoor Technologies Inc.,

Opendoor Technologies Inc., money managers including J.P. Morgan Asset Management and BlackRock Inc., platforms such as Fundrise and Roofstock that buy and arrange for the management of rentals on behalf of individuals and builder LGI Homes Inc., which now reports wholesale home sales to bulk buyers in its quarterly results.

Spring brought a fresh stampede of buyers.

PCCP LLC, which typically invests in apartment buildings and office towers, said it bought rental-home communities in the Southeast, the start of a $1 billion pact with Calstrs, Californiaʼs $286.9 billion teachersʼ retirement system.

Home builder Lennar Corp. announced a rental venture with investment firms including Centerbridge Partners LP and Allianz SE to which it and potentially other builders will supply more than $4 billion of houses.

Madison Realty Capital moved into rentals with clients that used to focus on developing apartment buildings and owner-occupied subdivisions. On Thursday, it closed a $110 million loan on a project in Los Angeles, where 220 of the nearly 700 home sites are being sold to investors. The original plans, derailed by the housing crash, didnʼt envision any rentals.

“A lot of things that would have been for-sale housing are going to be for-rent housing,” said Josh Zegen, Madisonʼs managing principal.

Bruce McNeilage began building houses to rent out around Nashville, Tenn., in 2005. After the housing crash, his Kinloch Partners expanded into other Southeastern markets, flipping occupied rentals to bigger investors.

Kinloch was financed mostly by community banks in the cities where it rehabbed foreclosures and built rentals. These days Kinloch can borrow far more from Walker & Dunlop Inc., a commercial real estate lender forging into suburban rentals. Mr. McNeilageʼs problem is that others are bidding up houses and lots.

“I am boxed out,” he said. “Thereʼs too many people chasing things and theyʼre willing to overpay. Itʼs silly money right now.”

Why Do Politicians Want to Take Away Homeownership from Communities of Color?

by Cynthia Davis and Susie Shannon

LA Progressive Newsletter, May 19, 2021

Cynthia and Susie
(L) Cynthia Davis, MPH
(R) Susie Shannon

Cynthia Davis, MPH, is Assistant Professor at Charles R. Drew University of Medicine and Science and Vice Chair of the AIDS Healthcare Foundation Board of Directors.
Susie Shannon is the Policy Director at Housing Is A Human Right, the housing advocacy division of AHF.

In California, politicians and developers are attacking single-family home zoning. Yet they suspiciously ignore that homeownership is a crucial tool for communities of color to build wealth. Politicians should not take that away by banning single-family zoning: people of color will suffer serious consequences.

For years, AIDS Healthcare Foundation and its housing advocacy division, Housing Is A Human Right, have battled the powerful forces that champion a troubling trickle-down housing agenda. The push to ban single-family zoning is born out of that.

Politicians and developers say that by building more pricey, market-rate apartments, eventually rent prices will drop with the increase of more rental housing. Therefore, they say, government must loosen land-use zoning that prevents developers from building more apartments. The argument is flawed and self-serving.

The trickle-down housing strategy has left behind moderate- and lower-income residents. They can’t afford market-rate units, and they are suffering most during the housing affordability crisis. It has also fueled gentrification in working-class communities of color, where new, over-priced apartments are often constructed. 

But the trickle-down housing agenda does help developers and corporate landlords generate billions in revenue by charging wildly inflated rents. And since the real estate industry shells out millions in campaign contributions, it wields great influence over politicians. 

The housing justice movement has strongly opposed trickle-down housing. In California, for example, activists stopped two state bills, SB 827 and SB 50, that would have implemented trickle-down housing. And we’re now fighting new legislation: SB 9 and SB 10, which again pushes trickle-down housing solutions.

We rightly argued that this legislation would fuel gentrification — and did virtually nothing to help moderate- and lower-income residents who urgently need affordable housing. 

The real estate industry and politicians understood they needed a new political argument against the housing justice movement to push through trickle-down housing. What did they come up with? A false narrative that single-family zoning is racist. It’s based on the horrible history of red-lining that segregated neighborhoods, but it’s another argument that’s obviously self-serving — and ignores the harm of gentrification and the value of homeownership for communities of color.

2013 study by researchers at Harvard University’s Joint Center for Housing Studies lays out several valuable points about homeownership for people of color. First, in real-life practice, homeowners are more likely to accumulate wealth than renters. Also, homeownership has meaningful social benefits in which people have control over one’s living situation, can put down roots in a community, and people feel a sense of success when owning a home. And, the Harvard researchers noted, policymakers should help people succeed as homeowners. 

Banning single-family zoning does nothing to achieve those goals. In fact, it’s quite the opposite.

Ending single-family zoning invites predatory developers into working-class communities of color, where properties may be less expensive. Those developers will then construct over-priced apartments, luring more affluent individuals into the neighborhood. Longtime, less affluent residents will then be forced out due to gentrification — they can’t afford rising rents.  

In addition, demolishing large swaths of single-family housing for apartments will harm renters’ ability to become homeowners and build wealth since less single-family housing stock will be available.  

Perhaps even most alarming, the aggressive push by politicians and the real estate industry to turn individuals, especially people of color, into permanent renters will create a massive transfer of wealth — and with that political power — that benefits those who will own the apartments: corporate landlords and other major real estate companies. 

If anything, politicians should come up with policies that help more people of color enter into homeownership — not subject more people of color to the predatory practices of developers. We need to improve troubling economic disparities, not worsen them.

Friends of Adeline Asks Berkeley Council to Reject SB9

Berkeley Daily Planet, June 13, 2021

Friends of Adeline is an organization of residents and neighbors in South Berkeley.

To the Mayor and members of the Berkeley City Council –
Friends of Adeline has, from its beginning, been a strong advocate for the building of more housing. We have seen our community decimated and our long-time residents, and their families, eliminated from the city. Local development over the last 25 years has pushed the cost of housing and the cost of living higher and higher. The homes they have lived in have become too expensive for them to be able to continue to survive here.
A major factor in the development of high cost housing has been the lack of any serious controls. New construction has been primarily of market rate housing. There have been only minimal attempts to ensure that low-income, affordable housing, gets built. Senate Bill 9 is now attempting to force Berkeley to have more, high-income, affordable housing and to eliminate more of its low-income residents.
We Say No To This.

Why is there is no requirement that any of the units replacing demolished homes be affordable? Some cities like Cambridge, MA allow greater density if the developer builds affordable units on a site. But SB 9 gives away density while bringing no benefit to the community.

SB 9 will result in more displacement. The San Pablo Park neighborhood has been zoned single-family residential since 1963. The homes here are not as expensive as in most other parts of the city. The lots here and the homes on them tend to be smaller than in other parts of the city. They will be less expensive to acquire by speculators than housing elsewhere. Much money can be made by demolishing them and replacing them with up to six market rate units, none of which need to be affordable to the many low-income people currently living in South Berkeley.

Once again, we see our community being looked at as the source for large profits for those who have little interest in the well-being of our people. We are pleased that Councilmembers Harrison, Wengraf and Hahn are asking the City Council to oppose SB 9. Friends of Adeline urges the Berkeley City Council to state that it cannot support legislation that allows housing development without a requirement of the inclusion of significant numbers of on-site, low-income, affordable units. 

Friends of Adeline Says Oppose SB 9!

Zoning changes could put a hurt on Black homeownership

by Madalyn Barber

Special to CalMatters, June 4, 2021

Madalyn Barber

Madalyn Barber is the operations specialist at Housing Is A Human Right,

I am a Black grandparent, homeowner and member of the Altadena Town Council. I grew up in a single-family home, and my husband and I have lived in our house in Altadena for more than two decades. Homeownership helped my family build wealth and provide stable, quality housing, and gave us our piece of the American Dream. But state and local politicians are threatening home ownership among the Black community by damaging single-family zoning laws. 

During the Great Migration, Black Americans moved from the South to California for better jobs and a better life. From the start, we understood that homeownership was essential for our economic well-being and independence. Members of my extended family bought homes in Altadena, a few miles north of Pasadena. We have prospered ever since, and it’s why we can still live in California — we are not renters who must hand over 40% of our paychecks to landlords.

Our homes have been sanctuaries that people know they can always return to, and we plan to pass our homes to our children so they can build wealth. We also are very engaged in our community because we have a vested interest as homeowners. Our homes, in a real way, give us political power and a voice at the table. 

But state and local elected officials in California–and across the United States– now seek to alter single-family zoning so that big developers can rush into middle- and working-class communities of color, demolish single-family homes and build pricey, market-rate apartments in their place. That dangerous agenda is playing out in California through Senate bills 9 and 10, which would gut single-family zoning and open the door for predatory developers — many of whom are regular campaign contributors to state and local politicians.  

Elected officials say that more housing needs to be built to address the housing affordability crisis, but their harmful agenda is based on failed trickle-down policy. They want to build expensive, market-rate apartments, contending that rent prices will eventually drop. It’s ludicrous.

First, middle- and working-class residents, especially people of color, are getting hit the hardest by the housing crisis. They need more quality, affordable housing, not luxury apartments they can’t afford. Second, there’s no guarantee that rents will decrease over time. Third, developers build where land is cheapest — which usually is in working-class communities. When they construct market-rate apartments, rents rise in the entire neighborhood, triggering gentrification and the displacement of longtime, lower-income residents. 

Perhaps worst of all, the effect of politicians’ trickle-down housing agenda could  turn people of color into permanent renters. That would strip us of our ability to build wealth through homeownership, and create a massive transfer of wealth that benefits the corporate landlords and real estate companies who will own the new apartments — and likely charge sky-high rents.

Harvard University researchers found that homeownership is crucial for building wealth and financial security for low-income residents and communities of color. Politicians must always consider the economic, cultural and political effects of land-use policy on these communities, and they should help more people of color enter into homeownership — not take it away. If not, they will be actively helping to worsen already troubling economic disparities, and they will rob our families of the ability to build intergenerational wealth.

SB 9 and SB 10 must be defeated. Politicians must stop pushing trickle-down policy and work to increase the production of affordable housing first and foremost, pass stronger tenant protections, and help more people of color enter into homeownership.

“SB 9 Rezones by state statute virtually all parcels within single-family residential zones in California….”

by Dan Carrigg

Dan Carrigg is widely respected in California for his decades of experience in legislative analysis, policy development, and advocacy, with extensive expertise in land-use issues. Currently Senior Policy Advisor with Renne Public Policy Group.

SB 9 Rezones by state statute virtually all parcels within single-family residential zones in California…. While the amendments [April 5, 2021] attempt to clarify the total number of units that can be constructed under SB 9 and current ADU law, with the continuing vagueness in the language, it can be argued that there is still a potential for up to 8 units to be constructed…. 

How to get to 4 Units:
Under ADU law, both a larger ADU and a junior ADU can be built on each lot. There is no doubt that a developer can get to four units on a parcel, by building a duplex (per 65852.21) then using (65852.2 ADU Law) to add two more units. This can also be done by building the ADU’s first, then splitting the main home into a duplex.

How to get to 6 Units (two pathways):
1) Duplex + two ADU’s + then build two more units under parcel split under 66411.7. A developer can get to six units by simply developing the duplex and ADU’s first, then later applying for a parcel split. This is due to the fact that there is no provision in the parcel split section that considers what level of development is on the existing parcel prior to the split.
2) Duplex + 2 ADU’s +2 ADUs: The amendments to the bill fail to clarify whether or not the “separate conveyance” language in sub. (f), will be interpreted to allows two ADUs to be built based on each one of the created duplex units that can be separately conveyed (sold). If this is not the author’s intent, it should be clarified.

How to (in theory) get to 8 units:
If separately conveyed duplex unit under Gov Code Section 65852.21(f) is interpreted to allow 2 ADUs for each separately conveyed unit, then a developer could split the main home into a duplex with each unit able to be separately conveyed (2 units), then build two ADUs for each separately conveyed duplex unit (4 more units), then build two more units with a parcel split. (2) + (4) + (2) = 8. The author could remove all confusion in this area with amendments. If the author’s intent is an absolute maximum of 2, 4, or 6 units under any combination of application of both Sections of SB 9, and ADU laws, then that should be clearly stated.”

Read Mr. Carrig’s original analysis of SB 9 here (PDF).