First, in the aftermath of the 2008 global financial crisis, Blackstone, through its Invitation Homes unit, significantly increased its presence in the residential real estate sector, particularly in the US, by purchasing an extraordinary and unprecedented number of foreclosed single-family properties, which were then converted into rental accommodation. This large-scale ownership has made it possible for single family rentals (SFR) to become, for the first time, an asset class and has had deleterious effects on the enjoyment of the right to housing.
Second, Blackstone is using its significant resources and political leverage to undermine domestic laws and policies that would in fact improve access to adequate housing consistent with international human rights law.
Blackstone Group pumped at least $6,859,747 into a ballot measure in California that would allow cities to re-establish rent control laws, including on single-family homes.
Blackstone has a portfolio of over 12,700 single-family rentals in California, and by defeating Prop 10; the firm can continue to jack up rents to an unlimited degree.
They have spent around $540 per California property on the “No on Prop 10″ effort — a piddling amount to maintain the right to increase monthly rents by unlimited amounts.
Proposition 10, a ballot measure to expand rent control in California, was decisively rejected by voters in a victory for the state’s top landlords (Blackstone) who spent millions to defeat it.
In its prospectus, Invitation Homes emphasizes the company’s “disciplined market and asset selection,” which increases “local density” and “drives “operational efficiency.” Similarly, Starwood Waypoint (merged with Invitation Homes in 2017) highlights its focus on markets with the greatest opportunities for home price appreciation and strong rental demand, where it “can attain property operating efficiencies as a result of geographic concentration.” When the two companies began discussing a potential merger with investors, they touted an 83% overlap between their portfolios.
Invitation Homes has drawn criticism from housing advocates for renting their homes at prices that are unaffordable for the working poor. Few renters with federal rent subsidies known as Section 8 live in homes owned by Invitation Homes and other institutional investors. This year, housing advocates and some legislators criticized Fannie Mae, one of two government-controlled mortgage finance giants, for agreeing to guarantee a $1 billion financing deal for Invitation Homes without getting any assurances that the company would do more to provide affordable housing.
In the same report by the UN to the CEO of Blackstone, it mentions that Blackstone is using its significant resources and political leverage to undermine domestic laws and policies that would in fact improve access to adequate housing consistent with international human rights law. Furthermore, access to affordable housing – with affordability defined by level of household income, not what the market can bear – is a cornerstone obligation of the right to adequate housing under international human rights law.
In 2013 Invitation Homes was the first company to do a securitization. Since Invitation Homes did its first securitization, ten more companies have entered the market, generating 39 securitizations totaling approximately $19.2 b. This means that Blackstone was at the forefront of doing securitizations based on the customer being able to pay their rent on time. As one can see, after their first successful securitization many other companies joined in.
It is such travesty that our own government, GSE’s and HUD helped Invitation Homes with financial help. The GSE’s could have focused on using vacant homes to help the families and communities most impacted by the financial crisis, rather than transferring them to Blackstone. That would have meant making a serious effort, as many housing advocates urged, to make it easier for local families and community groups to buy up stranded homes, giving them preference over absentee investors and speculators. Unfortunately, that is not what they did. Instead, Fannie and Freddie set up systems that disproportionately benefitted Wall Street buyers, and then provided a loan guarantee that lowered the cost of capital for a major Invitation Homes deal.
A Growing Political Force
Single-family rental companies are marshalling their collective political clout. In 2014, Starwood Waypoint (merged with Invitation Homes in 2017) launched the National Rental Home Council (NRHC), a non-profit trade association that seeks to combat negative press coverage and “communicate the industry’s value proposition, promote and defend the industry to stakeholders, policymakers and regulators, and reframe the existing stigma around renters.” Members of the Council include Invitation Homes, American Homes 4 Rent, Tricon American Homes, Altisource Rental Homes, FirstKey Homes, Roofstock, National Rental Homes, and over a dozen others. One big concern of the industry is that negative attention from community advocacy organizations or elected officials could hinder its business practices. “Numerous tenant rights and consumer rights organizations exist throughout the country and operate in our markets, and we may attract attention from some of these organizations and become a target of legal demands, litigation and negative publicity…” Such organizations, according to Invitation Homes’ prospectus, “might… attempt to bring claims against us on a class action basis for damages or injunctive relief and to seek to publicize our activities in a negative light… We cannot anticipate what form such legal actions might take, or what remedies they may seek.
Exactly as they foresaw it, Invitation Homes have numerous lawsuits against them. The biggest one is a class action lawsuit over excessive and illegal late fees charged to tenants who fall behind on rent. It also claims that Invitation Home’s late fees violate the law in each of the 12 states in which the company does business. Other lawsuits involve not properly maintaining its units like unfixed water pipes, insect infestations among other complaints. Residents have filed more than a dozen lawsuits against several giant SFR companies, including American Homes 4 Rent and Invitation Homes, along with several other firms that have since merged with the two giants. The lawsuits allege, among other problems, that many rental homes have been badly maintained by unresponsive property managers. Another Invitation Homes lawsuit claims that their house became a slum – one with persistent water leaks, cockroaches and mold that sickened a couple. There are other lawsuits, but they pretty much accuse Invitation Homes of what was described above.
The CEO of Blackstone is Stephen Schwarzman, former chair of President Trump’s Economic Advisory Council and still a close Trump ally and advisor. The CEO of Colony Capital – and former part-owner of Starwood Waypoint which merged with Invitation Homes in 2017, – is Thomas J. Barrack, another member of the Trump inner circle. Barrack helped found a political action committee, Rebuilding America Now, which raised $23 million for the Trump campaign; he also chaired Trump’s inauguration committee, helping to raise an astonishing $100 million – nearly twice the amount raised for the 2009 inauguration of President Obama. Thomas Barrack told the Washington Post that he and Trump began talking about the presidency as early as 1987, that the talk grew more serious in 1999, and that “fewer people are closer to Trump and that the two talk weekly.
In June of 2016, responding to appeals from community groups across the country, and from Senator Elizabeth Warren, Representative Mike Capuano, and the US Conference of Mayors, FHA announced new rules that, at least on their face, required investors to “consider” principal reduction first, while limiting interest rate increases, prohibiting investors from abandoning low-value properties, and created new opportunities for nonprofit and government buyers. Despite the changes, however, only 2% of the 8,107 loans sold in 2016 went to non-profit investors, while nearly 60% were sold to Bayview. (Blackstone has a stake in Bayview). Government auctions of distressed loans and foreclosed properties continue to provide large corporate firms with a steady supply of homes.
Again, according to the UN report written to the CEO of Blackstone, Mr. Schwarzman, business entities also have direct human rights responsibilities to respect and facilitate human rights, including the right to housing. This means Blackstone should refrain from taking any actions that will cause harm to tenants as well as taking positive steps to ensure the realization of the right to housing. In this context there is something called the United Nations Guiding Principles on Business and Human Rights, which were unanimously endorsed by the Human Rights Council in its resolution (A/HRC/RES/17/31), after years of consultations involving governments, civil society and the business community. The Guiding Principles have been established as the global authoritative norm for all States and companies to prevent, mitigate and address the negative business-related impacts on human rights. The responsibility to respect human rights is a global standard of conduct applicable to all companies wherever they operate. It exists regardless of the ability and / or willingness of States to meet their own human rights obligations and does not reduce those obligations. It is an additional responsibility to comply with national laws and regulations for the protection of human rights.
In Charlotte, North Carolina, Invitation Homes raised rents by as much as a third and filed eviction proceedings against nearly 10 percent of its renters. Plying investors with such upbeat projections creates intense pressure to keep houses occupied—even as residents are squeezed by higher rents and strict collections policies.
In Sacramento County, Calif., local news station KCRA reported in November of 2017 that Invitation Homes was the largest owner of rental homes in the Sacramento area.
At the time the report aired, looking at the top 10 property owners in Sacramento County, including all types of properties, Invitation Homes owned the second most property in the county.
Zillow rental data shows that in 2014, rent in single-family homes in Sacramento was increasing up to 50 percent faster than in multifamily apartments, before the latter caught up. Now, Sacramento is undergoing an affordable housing crunch, which local housing advocates believe Invitation Homes may have exacerbated by charging above-market rents, allowing other landlords to follow suit.
In Oakland, California, for example, information received suggests that Invitation Homes is raising rents by 10 percent per year, which is twice the average rent increase in the rental market for that area. The increasing gap between rental prices and median wages is driving renters out of their homes, forcing them to relocate at some distance from their places of employment, extended family members, and communities and contributing to homelessness.
In Los Angeles, for example, in the first quarter of 2017 rents increased overall by 3.9% but Invitation Homes reports almost double that.
Beginning in late 2013, the financial industry led by Blackstone started to do securitizations. In all they did 15 of them. When they go public, single-family rental companies become accountable to shareholders and face increasing pressure to deliver short-term financial returns, which often come at the expense of long-term productivity and social responsibility. Short-termism is a key byproduct of the modern financialized economy. Single-family rental companies are also under pressure from rating agencies to develop systems for imposing “competitive” rents. If they don’t, rating agencies threaten to downgrade their securitization deals. As Kroll Bond Rating Agency disclosed in its Single-Family Rental Rating Methodology, “KBRA will review a company’s strategy for determining rental rates, including which concessions or rent reductions are appropriate… If a company lacks a comprehensive, strategic approach to setting rental rates, KBRA may reduce its gross potential rent forecast and increase its vacancy assumptions to account for the risk that the portfolio may be adversely impacted due to underperforming management.” The threat of downgrading forces single-family rental companies to systemize rent collection and minimize “concessions,” discounts or deferred payment plans for families in crisis.
In the first quarter of 2017, Invitation Homes reported rent increases of 5.3% during the same period for tenants renewing their leases. However, year over year growth nationally stands at roughly 2.7% meaning that Invitation Homes charge nearly double the nation’s average.
Invitation Homes reported total rent increase of 7% in the Western states for the third quarter of 2017. Rental increases for the overall market are much lower than those reported by Invitation Homes, even in areas with the highest demand.
Tenants with pets face even higher rents and rent increases since most of the company now charge additional rent (not just a security deposit) for tenants with animals. Invitation Homes reported that “pet rents” charged by the company are up 300% year-over-year and now account for $1.5 million in additional corporate income.
This inability of tenants to negotiate with their landlord is exacerbated by the growing practice by large companies to set rents at a national level rather than depend on local property managers. If rents and fees are established by national executives through data algorithms and strictly imposed upon lower-level staff, there are fewer opportunities for tenants to contest rent increases or charges they regard as unfair. Invitation Home’s recent move toward a “National Lease” with standardized fees is another example of greater central control over the property management process.
In 2017, Invitation Homes attributed a 6% increase in property earnings to the implementation of a “national lease” which “standardizes rental fees across the portfolio,” and to a system designed to “track resident delinquency on a daily basis” in order to continually assess late fees. In the 2017 first quarter earning call, Invitation Homes credited its national lease and automated tenant-charge system with driving a 22% increase in ancillary income, resulting in $2 million of additional revenue. These mechanisms, the company boasted to investors, guaranteed that “fees are being charged appropriately, so they are not at the discretion of our local folks but go through the process automatically.” For Invitation Homes, in short, the elimination of the human element which a tenant would traditionally have with a mom-and-pop landlord is an important point of company pride.
Invitation Homes increased market power through strategic mergers and acquisitions which not only creates “economies of scale”; it also enables companies that enter a market early to maintain a permanent competitive advantage. New or emerging companies seeking to enter the single-family rental market in some areas of the country cannot acquire the deeply discounted homes that were available during the foreclosure crisis, and thus face substantial barriers to entry. These barriers allow existing companies to retain market dominance, and thus, increasing their impact on rent prices.
The Federal National Mortgage Association, aka Fannie Mae, announced that it would guarantee a $1 billion loan from Wells Fargo to Invitation Homes. Many industry observers found the move bizarre. In a letter to Mel Watt, director of the Federal Housing Finance Agency, which regulates Fannie Mae, National Association of Realtors president William Brown wrote:
“Rather than focusing on allowing well-qualified Americans to build wealth through affordable mortgage options, Fannie Mae is actively financing large institutions to compete with them. These investors do not expand the affordable housing stock. Rather, in this limited market they drive up the price of rents and remove affordable inventory from the hands of American homeowners. … At a time of a historically low homeownership rate, our nation needs [Fannie Mae] to bolster homeownership opportunities for millions of responsible, middle-class American families, not funding special-interest deals with Wall Street financial firms that take away those opportunities.”
The concentration of these so-called REO-to-rentals (REO stands for “real estate owned”) — along with flippers and real estate speculators, all of which draw upon large pools of financing — is yet another obstacle to first-time homebuyers struggling to gain a foothold in the modern economy, community members say.
“If I ever wanted to buy a house in Leimert Park, I’m not competing against people who grew up in Leimert Park,” says Damien Goodmon, a local activist. “I’m now competing against Wall Street investors, who’ve bought thousands of homes in a day.”