Housing prices just keep climbing.
One catalyst for this trend is the fact that homes today are often larger. Buyers are looking for more space, and amenities like washers and dryers, as well as air conditioning, are now considered essential.
Still, even with these upgrades, homes seem to be getting pricier.
But why is that?
Politicians have been quick to point fingers at large corporations, such as Blackstone, Invitation Homes, and JP Morgan, for snapping up thousands of properties.
Senator Elizabeth Warren (D-Mass.) expressed her concern, calling it “alarming” that homes are being purchased “not by families who wish to live there, but by speculators seeking financial gain.”
California’s Governor Gavin Newsom echoed this sentiment, stating, “It’s shameful that we’re allowing a private equity firm in Manhattan to become the largest landlord here.”
Surprisingly, even former President Donald Trump appeared to align with this perspective when he expressed a desire to prohibit “large institutional investors from buying single-family homes.”
But does that mean prices would actually decline?
No, according to housing economist Stephen Slibinski.
He explains that these big firms don’t just buy homes and take them off the market. Instead, they tend to renovate or even build new properties.
As Slibinski puts it, “They are making real estate a great place to live, and none of this would have happened without them.”
Investors often purchase dilapidated properties that many individuals can’t access, pouring more money into their renovations than average buyers would typically do.
For instance, Slibinski mentioned issues like damaged plumbing, walls, floors, and roofs that need fixing.
“We need people with capital to rehabilitate these properties, making them livable again,” he stressed.
Large companies can also hire specialists in a more efficient manner. For example, one expert may handle repairs for multiple homes.
As a result, Slibinski noted, “that’s really what the presence of these investors contributes to the housing market.” It can even help suppress housing prices.
Interestingly, the American Institute for Economic Research has found that home prices tend to be lower in areas with a greater number of institutional investors.
Unfortunately, many voters don’t seem to grasp these economic dynamics.
This lack of understanding is why Newsom keeps making statements like, “These investors are crushing the dream of homeownership.”
The flip side of the coin is that government intervention plays a significant role in rising prices.
Regulatory hurdles now represent nearly a quarter of the cost of a new home.
According to Slibinski, “The permitting process in most cities across America is extremely complicated and can stretch out for months or even years.” For example, one project in California took a staggering 22 years to gain approval.
“If it takes 22 years to bring a community to market, you can’t meet market demand,” a builder from Sacramento lamented. “$93,000 per house just to have the privilege of building!”
I can relate to his frustration.
When I built a house in Massachusetts back in 2009, the time spent getting permits outstripped the actual construction time.
At one point, I was even halted by officials who insisted I needed to hire an archaeologist to check for any potential “Indigenous burial sites” on the property. Thankfully, nothing was found.
Even in Texas, often praised for its less stringent regulations, bureaucrats can still obstruct construction, especially in Democratic-led cities.
In Dallas, officials attempted to streamline the permitting process by centralizing housing departments in one location—a solid idea, yet it backfired when they determined the licensing department didn’t have its own permits ready.
What options do builders have when the government can’t adhere to its own guidelines?
Such regulations lead to fewer available housing units and skyrocketing prices.
“That’s Economics 101,” Slibinski added. “When supply is limited, prices are high.”
“None of the proposals from Warren, Newsom, or Trump will change that.”
