Schumark Hearing Shows That Private Equity Is Not the Problem

By Norbert Michel of Cato.

"Yesterday, I was fortunate to testify before the Senate Banking Committee at a hearing titled How Private Equity Landlords are Changing the Housing Market. I’ve testified before, but yesterday was the first time that I was the only in person witness, a rather odd feeling, to say the least.

Anyway, to sum up my answer to the hearing title: Private equity landlords are not harming the housing market.

For starters, there are not that many of them relative to individual and corporate landlords. All of the witnesses – on both sides – agreed that the overall share of private equity landlords is small. Still, the Democratic witnesses (and Senators) tried to minimize this fact by arguing that private equity firms had bought up large concentrations in narrowly defined markets, such as some zip codes in Atlanta.

That argument might have helped create some good sound bites, but when your side admits (see page 9) that institutional investors are “concentrated in a relatively small number of markets” and that they are “also concentrated in specific market segments within metropolitan areas,” it’s pretty difficult to also argue that they have some sort of monopoly‐​type control or people’s choices.

In fact, one of the witnesses cited a Wall Street Journal article to bolster her point about “monopolization,” but that same article points out that when rents get high, most renters move on. Whether tenants buy their own home or rent elsewhere, the threat of competition is clearly at work – landlords can’t arbitrarily raise rents beyond what most renters can pay without losing tenants.

Two other aspects of the hearing struck me as somewhat strange.

First, several Democratic senators kept referring to the current housing crisis. I have no doubt that American housing markets are not perfect, but where is the crisis? It is true that the overall ownership rate hasn’t really changed much in the last fifty years, but it’s pretty odd to call that a crisis (the rate remains close to average for the developed world).

Of course, if these folks are referring to rapid house price appreciation as a crisis, they have to look no further than the policies that they have been pushing for decades, all of which increase demand and do nothing to increase supply.

Adding insult to injury, the Democratic Senators (and their witnesses) tried to minimize that these supposedly evil institutional investors bought loads of foreclosed homes from federal agencies. That inconvenient fact, of course, points the finger right back at the federal policies that artificially boost demand for housing, particularly those involving Fannie, Freddie, and the FHA.

The last strange part was that I felt like I had stepped back into the policy debates of the early 1900s. To address the alleged crisis, the Democratic members want to expand public housing, provide more rent subsidies, and implement rent control. These are the very same failed policies that progressives started pushing more than a century ago.

Still, as Senators Toomey (R-PA) and Tillis (R-NC) correctly pointed out, about fifty years ago, Congress collectively admitted that warehousing lower‐​income Americans in subsidized housing projects was a horrible idea. That admission even led to the eventual bulldozing of those buildings and an agreement to stop building new housing projects.

The Senators also did American taxpayers a service by explaining that a huge portion of the public housing funds in the reconciliation bill are because Senator Schumer (D-NY) wants to send an extra $40 billion to the New York City Housing Authority. According to Michael Hendrix of the Manhattan Institute, this amount, dubbed the Schumark, represents approximately $250,000 for every family living in public housing in New York City.

It certainly does not say anything good about American politics that, in 2021, members of Congress are vilifying private investors to help them revive public housing. I’d wager that most people living in housing projects don’t feel very grateful."