Are Wall Street hedge funds buying up homes in the Bay Area?
In the past few weeks, theres been spirited online debate about whether the pandemic is enabling large investment funds like BlackRock to vacuum up single-family homes by the thousands. In a viral twitter thread thats become known as the BlackRock Buying Houses meme, one user claimed these firms were outbidding individual home buyers by going 20% to 50% above homes already-high asking prices. Public figures across the political spectrum, from Hillbilly Elegy author and Ohio Republican senate candidate J.D. Vance to Democratic Massachusetts Sen. Elizabeth Warren, have spoken out against the perceived trend. They have expressed concern that institutional investors could lock young families out of home ownership and force them to rent these homes instead, charging higher rents and evicting more tenants than smaller landlords. Not really, according to local housing advocates, real estate experts, and sales data. While institutional investors do have a presence here, the reality of the Bay Areas housing crunch is far more complicated, without a single cause or corporate villain. The Chronicle obtained summary data from the John Burns Real Estate Consulting group, which looks at the percentage of homes where the property taxs ZIP code differs from the ZIP code of the home address to determine roughly how many homes are bought by someone who doesnt intend to live there, a good proxy for whether the home was purchased by an investor. As of 2020, the percentage of homes in the Bay Area bought by investors each year was 15%, up from 10% in 2005. However, experts say its likely much of that increase happened around the 2008 mortgage crisis, when institutional investors purchased foreclosed homes en masse nationwide. As of the first quarter of 2021, the estimated share of homes purchased by investors has only increased by 1% so far this year, to 16%. Furthermore, the percentage of homes bought by investors in the Bay Area remains substantially lower than in the United States overall. According to their data, 24% of homes were purchased by investors in the first quarter of 2021, an increase from about 21% in 2020. The John Burns Real Estate data doesnt specify which types of investors are buying homes  it includes anyone from a large corporation like American Homes 4 Rent, a company originally owned by Blackstone (a private equity firm often confused with BlackRock) to a smaller home-flipper or even a single family purchasing a vacation home. But John Burns, the CEO of John Burns Real Estate Consulting, said in his experience, most Bay Area investors are house flippers and international companies and individuals. National hedge funds and other large corporate investors have been less active in the Bay Area during the pandemic than in more affordable housing markets like Phoenix and parts of Texas. The big money that is moving in (right now) is not moving into the Bay Area, Burns told The Chronicle. Its going where homes are less expensive because they can rent them out more profitably.  Burns said the Bay Areas housing affordability crisis is due less to institutional investors and more to land shortages, strict zoning regulations and anti-development politics. Nationwide, corporate institutional investors owned 300,000 single-family rental units as of 2019  just 2% of the roughly 15 million rental homes that exist, according to Radian, a mortgage insurance company. The idea that hedge funds have bought substantially more single-family homes since then  and that this is a primary driver of the current housing affordability crisis in the Bay Area  does not appear to be supported by the data, Burns said. These big major single family rental operators ... nationwide, all of them own single digits in terms of the rental stock in the country, Dean Wehrli, a principal at Burns firm, told The Chronicle. I think they will just gradually increase that market share but... it will take forever before they have a dominance in market share, if ever.  Instead, the primary driver of Californias worsening housing affordability crisis appears to be the same thing its been for years: a severe shortage of homes. The state would need an estimated 3 million housing units to substantially improve affordability as of 2018, according to UCLA economist Jerry Nickelsburg. The squeeze on housing supply is particularly acute in the Bay Area, where a recent report from the National Low Income Housing Coalition estimated that a shortage of over 160,000 homes existed for households in poverty alone, not to mention working and middle-class families. Adding to that are pandemic-led factors, like a huge number of young families entering the housing market for the first time and interested in their own space, plus historically low interest rates. Thats not to say housing companies and big investors havent played an important role in the Bay Areas current housing landscape, said Desiree Fields, a professor at UC Berkeley focusing on the financialization of the housing market. In one recent example, Wedgewood Inc., a private equity firm that flips houses, came to notoriety early last year when a group of Oakland mothers called Moms 4 Housing occupied one of the at least 125 properties it then owned across the Bay Area. But most of the companies that own lots of Bay Area properties arent Wall Street-based; theyre smaller and local, Fields added. These smaller investors, like Neil Sullivan of Sullivan Management Company/REO Homes in the East Bay and Mosser Capital, plus Veritas Investments in San Francisco, continue to acquire buildings to rent out, Erin McElroy, a founding member of the Anti-Eviction Mapping Project, told The Chronicle. What we are seeing is these other investment companies that are not Wall Street-based but nevertheless large. And they model some of the Wall Street investment companies strategies and tactics and are now the biggest landlords in the city and sometimes the worst evictors, McElroy said. Local institutional investors gained market share in the Bay Area following the mortgage crisis of 2008, when many lower-income families of color  particularly in the East Bay  were forced to default on their mortgages, causing their homes to be foreclosed. Corporate investors acquired nearly half of the homes that foreclosed in Oakland, and the properties they acquired were almost entirely in the citys lower-income neighborhoods, according to a 2012 report by the Urban Strategies Council. You had these institutional, large and terrible landlords who were abusing tenants, kicking them out, trying to get a different class of clientele into their homes and totally changing the neighborhoods, Kevin Stein, deputy director of the advocacy group California Reinvest Coalition, told The Chronicle. A recent report by the Strategic Actions for a Just Economy found that areas in Los Angeles with higher concentrations of corporation-owned residential buildings tend to see larger rent increases than those with lower concentrations. Housing advocates are particularly concerned for tenants in single-family homes, which dont have the same rent-control protections as multifamily units in California thanks to the Costa Hawkins law. And while big investment firms may not yet be snapping up a bunch of homes in the Bay Area, Stein said, he and other housing advocates believe many are poised to start buying once Californias foreclosure protections expire. The foreclosure prevention is still in place. The moratoriums are still in place. So well see what happens right after, California Reinvest organizer Jyotswaroop Bawa said, citing a recent report from the Institute of Policy Studies that found that the 20 largest landlords in the United States  10 of which operate in California  have amassed at least $245 billion to purchase homes and related companies in the market. Bawa and Stein are working to pass AB1199, a bill that would impose a tax on corporate landlords that rent out 10 or more properties and require companies to disclose their owner information on public documents. Still, experts say that whatever institutional investors end up doing in the Bay Area will have been enabled by a housing shortage that predates them  caused by antidevelopment ordinances and officials, too much single-family zoning and homeowners that support policies to keep housing stock low and their own home values high. I think what drives people nuts about BlackRock investing in residential real estate is it gives away the whole game, Jake Anbinder, a doctoral candidate in history at Harvard University, wrote on Twitter. The largest investor isnt BlackRock. Its American homeowners. And they already have exactly the same incentive.  Susie Neilson is a San Francisco Chronicle staff writer. Email: susie.neilson@sfchronicle.com Twitter: @susieneilson