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Corporate private equity firms, such as Blackstone, BlackRock, and Brookfield, are having a severe impact on the global housing market. Targeting affordable housing units, these companies buy residential properties, charge high rents, and contribute toward making homeownership less accessible. This often results in the displacement of local communities, creating serious challenges for tenants, while these companies continue to profit immensely.
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In September 2024, the International Trade Union Confederation (ITUC) named seven major companies that are undermining democracy. Among them are technology, oil, and private equity firms.
The ITUC considers seven major companies, in particular, as drivers of evading accountability and also funding controversial political movements, including far-right initiatives.
Blackstone is the largest private equity firm in the world. It is also the largest private real-estate owner, heavily profiting from the effects of the 2008 financial crisis on the housing market.
The 2008 financial crisis began in the United States, but quickly spread around the world. Financial institutions took big risks in issuing credit for mortgages, called subprime mortgages, for low-income people who didn’t have stable means to continuously make monthly payments.
Banks aggregated all these high-risk mortgages together and sold them as safe and profitable investments. When interest rates started increasing, those who took out subprime mortgages couldn’t make their payments, leading to a huge drop in housing prices.
Suddenly, the safe and profitable housing market investments revealed themselves as high-risk, leading to the near collapse of major financial institutions. Credit froze, and businesses and individuals couldn’t take out loans, slowing down the economy significantly.
Mass layoffs led to a surge in unemployment rates and, at the risk of a complete collapse of the economy, the US intervened to bail out financial institutions from complete collapse.
Yet, there were still a few sectors that were able to profit from its devastating effects, namely private equity firms, debt collectors, foreclosure services, and certain financial traders.
One such company was Blackstone. The company alone generated US$7 billion following the 2008 financial crisis, which led to over nine million home foreclosures and the collapse of the housing market in the United States.
The effects of the crisis were primarily devastating for African American and Latino families, who, historically, had already faced challenges in homeownership and access to mortgages.
Low-income homeowners were unable to access credit during the crisis, and much less capable of competing with the economic power of big firms. The suffering of low-income homeowners marked a significant opportunity for firms like Blackstone.
As people were kicked out of their homes due to their inability to pay their mortgages, banks and investors found a way to profit through the federal bailout.
As a pioneer, Blackstone began buying foreclosed homes, tending to necessary improvements, and then renting them out, turning homes previously owned by individual buyers into rental cash cows.
Through the company’s subsidiary, Invitation Homes, they purchased upwards of 48,000 homes between 2012 and 2016 at reduced prices through auctions or at very low prices.
Ultimately, Blackstone invested around US$10 billion in their efforts to flip homes, subsequently disrupting local rental markets with high rental prices.
Blackstone then collaborated with major banks like J.P. Morgan and Deutsche Bank to aggregate the value of profitable rental properties and sell it as a bond to investors, similar to the risky patterns that caused the 2008 financial crash.
By converting previously owned homes into lucrative rentals and subsequently profiting from property appreciation, meaning the increase in property value, the housing market was reshaped.
Availability of housing, purchasing and rental prices, and housing policies have all been dominated by institutional investors, giving them corporate control over the housing market.
Blackstone owns rental properties throughout the world, as well as logistics and warehouse facilities, hospitality chains, and student housing, making it one of the most influential entities in the global real estate market.
To understand the sheer domination of Blackstone: the firm has a market value of approximately US$130 billion, with assets well over $1 trillion.
Stephen Schwarzman, who heads the firm, has also invested in funding Trump’s reelection campaign, efforts to advance deforestation in the Amazon forest, and fossil fuel projects.
The ITUC report notes, “Blackstone’s network has spent tens of millions of dollars supporting politicians and political forces who promise to prevent or eliminate regulations that might hold it to account.”
Because Blackstone views housing as assets, its ultimate goal is to generate the maximum amount of profits possible for itself. When housing is merely treated as a lucrative product, it is pulled away from its function as a basic human necessity.
By purchasing large numbers of properties and turning them into rental units at the highest rents possible, companies like Blackstone drive housing prices up. They reduce the possibility for the average person to access affordable rental housing and raise the prices of property to such an extent that becoming a homeowner is increasingly challenging.
On a community level, this can be very disruptive, as these actions are geared toward housing instability. The cheaper properties become before companies like Blackstone swoop in, the more their potential profit margin grows.
This aspect of housing instability also contributes to making whole neighborhoods suddenly unaffordable for locals, as they can’t keep up with rising housing costs. This trend is often linked to gentrification.
Gentrification refers to when property values of a particular neighborhood or area increase to such an extent that low-income residents are displaced from their homes in favor of more affluent renters or buyers.
Cities like New York City, Berlin, London, and Los Angeles provide a clear example of such behavior. Blackstone’s housing acquisition tactics cause prices to inflate to such a degree that locals can no longer afford to live in their neighborhoods.
Since the company acquires large amounts of property at a time, it simultaneously creates a decrease in housing availability. In New York City alone Blackstone owns over 10,000 properties.
While that may not seem like a lot in a city of over two million housing units, the neighborhoods where it has invested suffered major destabilization. In 2015, Blackstone acquired Stuyvesant Town-Peter Cooper Village (11,000 unit building for US$5.3 billion), marking one of the biggest real estate deals in the city’s history. Today, the units are worth upwards of $8 billion.
Sources: (The Guardian) (MSN) (BBC) (United Nations) (Common Dreams) (International Business Times UK) (Fox 5) (Business Wire)
See also: Cities being overrun by tourists
How corporate private equity is driving global housing crises
Rent hikes and inaccessible homeownership
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Corporate private equity firms, such as Blackstone, BlackRock, and Brookfield, are having a severe impact on the global housing market. Targeting affordable housing units, these companies buy residential properties, charge high rents, and contribute toward making homeownership less accessible. This often results in the displacement of local communities, creating serious challenges for tenants, while these companies continue to profit immensely.
Want to learn more? Click through the gallery for more information.