In the next few weeks, more than 130,000 mortgage holders with the nationalized UK bank Northern Rock will be told their home loans have been sold off as part of an attempt to help repay Britain's national debt. They may find their new lender is a more aggressive partner than they're used to.
Private equity firm Blackstone has its sight set on the British mortgage market, leading a consortium including Goldman Sachs to buy Granite, a financial vehicle holding Northern Rock's most shaky home loans.
It's not the first time Blackstone has exerted its buying power in the housing market — it is already well-known in the United States for buying up foreclosed houses in the wake of the last recession. In fact, across the globe there are signs that the world's most powerful and unaccountable financial institutions are gaining more and more control over housing stock.
Concerns over the aims of these institutions or "transnational landlords" led to the first meeting in London this summer by an international group of housing academics and activists. American academic Desiree Fields was one of the organizers. "By acquiring distressed housing and loans, private equity firms and hedge funds are effectively becoming landlords, often for marginalized people and in places subject to the worst fallout of the crisis," she said.
Blackstone's UK consortium includes hedge fund Och Ziff, recently investigated for its 2008 investment in Zimbabwe's platinum mines. It's alleged this enabled Robert Mugabe to afford a campaign of intimidation against the opposing party when it was on the brink of being ousted.
"I would not want a commercially driven private equity group to own my house. There is nothing good about that," said Simon Lack, ex-hedge fund manager turned skeptic who wrote The Hedge Fund Mirage: The Illusion of Big Money and Why It's Too Good to be True. Lack said that anyone concerned about these companies as domestic landlords should look at how they go after corporate borrowers. Some hedge funds, known as vulture funds, deliberately go after distressed debt, purchasing at low prices then aggressively pursuing or exploiting their struggling debtors.
Hedge fund manager Paul Singer, perhaps the most famous so-called vulture fund director, is still trying to take possession of any asset of Argentina's he can find around the globe, refusing to accept the terms of the government's debt restructurings. He went as far as to get the Ghanaian government to impound an Argentine naval vessel. It took a United Nations Court to get the boat and its 200-strong crew back to Argentina. "You better never miss a payment," Lack said, when considering these institutions as your everyday mortgage lender.
It is a pattern that activists say is happening across Europe as governments seek to, or are forced to, rid themselves of debts taken on in the crisis. In Greece, where home ownership has traditionally been very high, residents face a double whammy. Tax hikes and wage depression have led to increased evictions as mortgage and loan repayments can't be met, and now the country's deal to pay back the European Union is likely to include selling off those loans to foreign firms.
Tens of thousands of evictions have taken place and homelessness in Athens rose by 40 percent in just three months this year, according to charity research. Georgia Alexandri of the National Centre of Social Research in Greece believes the likes of Blackstone will be moving in. "The Greeks cannot buy houses anymore, and the Greeks with money prefer to buy houses in London. So with house prices indicating enormous drops, who is buying in Greece?"
"It's absolute carnage, the private rental sector is in freefall. It is the main generator of homelessness," said Mick Byrne of the Dublin Tenants Association in Ireland. He says incoming institutional landlords are swooping in on what amounts to a fire sale of Irish property and land by the government.
These new investors are mainly focused on the upper end of the rental market, partly catered to people who should be able to buy their own place, but can no longer get the credit. It's helping to push up prices across the board, by reducing the amount of land available for social or affordable housing. Dublin rents have gone up by just under 10 percent over the last year.
"Once you would only see people with drug problems or alcohol problems or migrants on the streets, which is bad enough, but now it can be anyone priced out of the rental sector," Byrne said. In the first seven months of this year 466 families became homeless in Dublin, almost as many as the whole of 2014.
The biggest of these new investors in Ireland is the Irish Residential Real Estate Investment Trust (I-RES), which has spent around 400 million euros ($293 million) in the last year or two acquiring 1,200 apartments in Dublin. It's aiming for 3,000 and widely reported as looking to raise rents by 20 percent in the next year. But in this world of transnational finance, it's to Canada we need to look for what they're like as landlords.
I-RES is financially supported by the Canadian Apartment Properties Real Estate Investment Trust (CAPREIT), which owns more than 40,000 homes across Canada. Almost 1,000 of them stand on what was once the 1976 Olympic Village site in Montreal. VICE News spoke to one of the Montreal tenants, Suzanne, who had a litany of allegations related to their management of the building.
Suzanne said by the time CAPREIT bought the building at a rock bottom price in 2012, it was already in disrepair, the victim of property management companies "milking the building" — rapidly buying and selling before doing any maintenance. Now CAPREIT is the owner, Suzanne said it was trying to pass the repair bill on to tenants by repeatedly raising rents, and shifting apartments reserved for low-income groups into higher rent brackets as soon as the tenant moves out.
Suzanne believes CAPREIT bullies its tenants, many of whom are older, students, or migrants, and who are scared of being made homeless if they complain.
Suzanne is not the only one with a problem with CAPREIT. On this website, CAPREIT tenants across Canada make allegations of extraordinary negligence, including permanent leaks, broken electrics, mouse and cockroach infestations, and a lack of heating despite soaring utility bills. All make reference to the difficulties of getting anyone at CAPREIT to be accountable for their building's problems.
Desiree Fields told VICE News that the difficulties of organizing against these types of landlords was a huge difference to the "mom and pop" model we're more familiar with, where landlords own just a few properties. She said that in the UK, when laws around renting were dismantled during the 1980s, allowing landlords far greater freedom to set tenancy terms, the government probably didn't envisage the likes of Blackstone or Och Ziff being the names on the agreement.
Activists say the ability of these players to outsmart local regulations is worrying. For example, in California, there are rent protections, but they don't apply to detached houses, which is what Blackstone strongly went after buying in the wake of the financial crash.
Blackstone has been dogged by negative reports in the US for its managing of its rental portfolio, which just this month expanded with the purchase of nearly 1,000 family apartments across 24 Manhattan apartment buildings. Allegations include rent hikes, aggressive collections, and neglect of maintenance. There are also fears that risky financial strategies are back. Blackstone is borrowing against the value of its rental portfolio, this month raising $48 million for 177 houses in Florida. Next year, Invitation Homes, the Blackstone-owned company that manages the rental portfolio, will be publicly listed. The pressure for high returns will be felt by tenants.
Transnational landlords' domination extends through lending to smaller buy-to-let landlords. In the US, Blackstone funds B2R Finance, for investors with portfolios of between five and 500 homes. But a lender like Blackstone wants a watertight payback, so it also invests in start-ups developing algorithm-driven technologies that assist landlords big and small to find the best properties to buy and the tenants to fill them. Of course, those smaller landlords then need to buy those technologies, and Blackstone gets a cut of that too.
This professionalizing and financializing of the rental market could lock millions more people out of owning their home for generations. A paper released earlier this year by investment bank Morgan Stanley, advising its investors on the opportunities that buying up distressed housing to rent out presents, makes it clear it considers first-time owners direct competition.
These new landlords are here to stay. "They wouldn't bother developing the expertise to treat it opportunistically," said Simon Lack, and political action is needed to regulate them. In Spain, Blackstone, the new landlord of nearly 42,000 rental homes and mortgages, has started feeling the heat after a wave of evictions in Madrid caused a national outcry.
In July, the city's new mayor, Manuela Carmen announced the overturning of eviction orders for 70 families living in social housing, and action to protect thousands more. Blackstone said it will restructure mortgages on its books so more people can stay in their homes, but its enthusiasm for buying is undimmed, recently closing on a $54 million deal for 500 more subsidized homes in the capital.
In most European countries, as in the US, governments are too blindsided by the need for home building to think about what kind it is or who owns it. "The mainstream political discourse is supply, supply, supply and anything new built is a good thing," Byrne said. "We know that we need more affordable rental housing, but transnational landlords won't deliver that."
Neither CAPREIT nor Blackstone responded to requests for comment from VICE News.
Follow Cat McShane on Twitter: @CatMcShane