If you think we've learned anything since we last bailed out the banks and realised that people working in finance had been gambling not just with their salaries but with people's homes, savings and lives, you're wrong.
Image via Tomasz Krzykata
This past week, protestors gathered in three international cities to demonstrate against the actions of the Blackstone Group, the world's biggest private equity company, and also the new landlord of many ordinary people's homes.
Not content with profiting out of the NHS (biggest private recipient of funds) or owning chunks of whole cities like the High Holborn Estate in London (now rebranded Midtown, if you believe it), since the last economic crash it's been busy buying up housing stock across the United States and Europe.
The problem is that, so far, they haven't proved to be great landlords. Some say the presence of Blackstone and other private equity companies in residential housing spells economic disaster all over again, and is only going to benefit the same people who caused the last crisis.
Basically, if you think if you think any lessons have been learned since we had to bail out the banks and realised people working in finance had been gambling not just with their ludicrous salaries but with people's homes, savings and lives, you are wrong.
The protests were specifically targeted at the actions of Blackstone – who aren't, it must be stipulated, actually doing anything illegal – in Barcelona and Madrid, and organised by PAH, a group of Spanish housing activists formed to combat what they see as unfair evictions since the crash, and more recently those ordered on behalf of major US firms, who have been buying tens of thousands of cheap houses in both these cities as Spain's recession drags on.
Last year, Madrid's city and regional governments sold almost 5,000 rent-controlled homes to Goldman Sachs and Blackstone. Tenants were assured nothing would change. But as old contracts have expired, demands for higher rents have come in, which has inevitably lead to the threat of eviction. The conservative government even made it easier for companies to evict tenants, to encourage private investment.
Tenants are some of the city's poorest and most vulnerable. Reuters reported this included a single mother of five with a severely disabled daughter, and an HIV patient with one lung. Both evictions were halted at the last minute.
One family that wasn't so lucky was Wilson Ruilova and Cecili Paredes and their three kids, one of whom is just three months old. Since losing their jobs as an electrician and care manager (not unusual given just under a quarter of people in Spain are out of work) Wilson and Cecili have struggled to pay their rent and last month they were forcibly evicted. A video shows police clad in full riot gear smashing down the door and escorting the family out of their flat. The council says it offered alternative accommodation, which was refused. The family is now in the care of social services.
PAH want the evictions to stop and say that the housing should never have been sold. Its former owner was Catalunya Bank, an institution that was bailed out to the tune of 12 billion euros ($15.4 billion). PAH activists consider this to be nationalising the bank. "These homes belong to the people, not Blackstone," said Maka Suárez, a member of PAH.
Barbara Steenbergen, head of the International Union of Tenants – which fights for tenants' rights and the promotion of affordable housing in 45 countries – told me that if the involvement of private equity in German rental housing was an indicator, its presence in other countries wasn't positive. "They squeeze out the profit and, when they exit, leave the apartments in a terrible state, like a ghetto."
That's what happened in New York, where, during the boom, hundreds of blocks of rent-controlled apartments were sold to private equity investors. They planned on paying back the huge mortgages taken out by raising the rent as soon as those older rent-controlled residents moved on. Only they didn't, they hung on. So the owners turned on the screws, sending out false eviction letters and stopping maintenance, hoping to drive them out or halt their losses.
Most of the big private equity players have now left New York. Some buildings foreclosed, blocks left half-empty where there were once busy communities, the city's poorest tenants clinging on in buildings no longer safe to live in. The losers were the tenants and the investors, like schools and hospitals who'd put their pension funds into this failed scheme. The private equity companies lost little.
Instead, they took what they'd learned and moved into buying up cheap, family homes that foreclosed in the aftermath of the crash, and then renting them back to people who'd just lost their homes. Even would-be owners were priced out and needed to rent. It was win win. And no company moved so quickly as Blackstone, which is now the United States' biggest private landlord, owning over 44000 houses.
Desiree Fields is an American academic who co-authored a 2014 report The Rise of the Corporate Landlord for the Homes for All campaign, which defends housing for low income groups across the United States. She told me that the crash opened the door to big investors, who'd previously been unable to get a foothold in a market with lots of small time "mom and pop" buy-to-let owners. "There was suddenly all these properties being sold with massive discounts, to massive demand from people who'd lost their houses. It became a new market segment they thought they could exploit"
Many also allege there has been exploitation by landlords with no experience of managing thousands of family houses. Hundreds of tenants in Atlanta, Los Angeles and Riverside, California living in homes owned by the Blackstone-owned Invitation Homes told the report's authors of their experiences. Houses weren't fixed up between tenants, lease renewals entailed breathtaking rent hikes of between 37 percent to 53 percent and aggressive rent collection techniques included delivery of eviction notices the same day rent was due.
But Fields' concerns stretch beyond the day-to-day conditions of living under a corporate landlord. She's worried that their presence in places like Phoenix and Atlanta is preventing more and more people out from ever owning their own home as they've over-inflated the price and the rent is too high to save anything. The concern is that this is forever shutting off wealth accumulation to poorer groups.
And all this money flowing out has a knock-on effect to the rest of the community. "Small landlords can be as shitty as big ones, but at least when rental homes are controlled by small mom and pop owners the money stays local," she said. Instead, private equity is sucking already poor communities dry of wealth.
But the real kicker is yet to come. You'd think, after the last crash, and the subprime mortgage crisis that saw so many people lose their houses, that financiers wouldn't gamble with housing debt again. But for a company like Blackstone, collecting rents isn't going earn enough money to keep its CEO in annual wage packets of $465.4 million.
"Politicians think housing investment is real wealth creation, but it's a pure transfer of income to the richest" – Fred Harrison
Enter rent-backed securities, predicted to swell into nearly a $1 trillion industry in the next year. Just like last time, a company takes a bunch of houses it has mortgages on, packages up some of that debt and sells it to investors. But this time around, investors are creaming it not from dodgy mortgage payments but the rent checks of thousands of ordinary Americans.
It's no wonder private equity companies are aggressive collecting the rent, then, because if people start missing payments, then money to investors might be delayed and the whole pyramid starts to fall. Even if someone has never missed a payment it could lead to eviction because, at any moment, the company could decide to sell the lot and pay back their investors. "All the ingredients are there for a disaster," says Fields.
Over the last few months, Blackstone has bought up two British mortgage lenders, Acenden and Kensington – both known for giving mortgages to people who couldn't borrow from anyone else. Good luck to those owners if they miss a payment. Because for every victory like New Era, there are a hundred other pincer movements from international finance – often encouraged by our governments – to gain control of our housing stock, knowing it's the most secure investment they can make.
When I was researching this article, I spoke to Fred Harrison, an economist and journalist widely acknowledged as having predicted the last housing crash. Neither more or less in favour of big or small landlords, he reserved most of his venom for our elected representatives, who he considered too stupid to learn any lessons from past housing crises, and so we're headed for more of them. "Politicians think housing investment is real wealth creation," he said. "But it's a pure transfer of income to the richest."
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