In Huber Heights, Ohio, Wall Street’s newest tactic for extracting profit from Main Street is on dramatic display. The Dayton suburb finds itself 9 percent owned by a hedge fund that played a key role in inflating and exploding the sub-prime mortgage bubble, putting the town’s public school and other budgets in jeopardy.
Magnetar Capital owns one of every 11 homes in 40,000-person Huber Heights after purchasing the rental company that was founded by the town’s namesake, Charles Huber. Huber built almost 13,000 houses in the town from 1956 to 1992, and when his widow decided to sell the company that managed almost 2,000 of his rental units, Magnetar jumped at the chance. The deal made Magnetar “the town’s largest landlord,” according to Bloomberg. Now under new management, the company wants the county tax assessors to cut their assessment of the value of Magnetar’s homes by 49 percent — a cut that would gut the town’s tax collections and jeopardize public services and school budgets. If Magnetar gets its reassessment, the small town will lose $1.39 million in tax revenue and likely have to lay off 16 teachers.
Magnetar’s deal is headline-worthy because it is unusually dominant in a single local rental housing market, but the practice of financial firms becoming landlords is much broader. Financial industry players have been buying up rental properties in surprising numbers since the financial crisis, with as many as 200,000 homes now owned by private-equity firms and hedge funds.
The trend has some potential negative consequences. The industry’s play for rental housing puts a squeeze on already scarce low-income housing. Given the higher revenues possible from higher-earning tenants and the bureaucracy that Section 8 vouchers bring into the picture, firms might decide to stop renting to low-income families. It also sucks rent payment dollars out of local economies and into distant investment portfolios. If that money goes to hedge fund investors instead of local landlords who will spend it at local stores, the town loses economic activity that supports jobs. In the larger picture, analysts have warned that the apparent resurgence in home prices owes largely to Wall Street’s move into the for-profit home ownership game.
Mangetar in particular also has a pretty bad reputation. The eight-year-old hedge fund has so far escaped charges for its role in the subprime mortgage racket that ultimately brought down the economy, but it was under federal investigation for years for betting against the investment positions it recommended to others. Firms that did business with Magnetar lost as much as $40 billion on the deals, and the firm’s strategy was key to keeping the subprime market going. Over the summer, the Securities and Exchange Commission gave up on filing charges against it.