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Wall Street Is Drooling Over The Money It Will Make On Americans Who Can’t Afford Houses

By Alan Pyke on February 20, 2014 at 4:57 pm

"Wall Street Is Drooling Over The Money It Will Make On Americans Who Can’t Afford Houses"

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Bad news for American families is great news for the financial industry, according to the real estate finance industry trade magazine CRE Finance World (CREFW).

Workers’ incomes will continue to decline and homeownership will become an ever more remote dream for the typical American, boosting demand for rental housing and pushing the cost of rent up, an article in the magazine’s new edition says. That will cause the market for rental housing securities — complex financial contracts backed by rental properties — to explode over the next year, Deutsche Bank analyst Harris Trifon writes.

Right now, the rental housing securities market mostly consists of a single half-billion dollar deal from late last year. If Trifon is correct, the market will be ten times larger by the end of the year, growing to $5 billion, and will reach $20 billion in the near future.

Given that Trifon’s firm helped arrange the first major rental-backed securities deal last year and that his analysis is being published by a magazine made by and for industry insiders, some skepticism is warranted. But the basis for his analysis looks sound. Working peoples’ incomes are stagnant or even falling, making it harder to afford buying a house. More than a trillion dollars of outstanding student loans are keeping hundreds of thousands of young people from buying homes. These obstacles to homeownership don’t appear to be dissipating anytime soon, so it stands to reason that the demand for rental housing will continue to climb, allowing landlords to raise rents all across the country.

Those projections have real consequences for the tens of millions of Americans who will actually live their lives in these rented homes. More renters will find themselves dealing with faceless corporate landlords who feel more responsible to far-away investors than to their tenants. Wall Street firms have moved aggressively into the landlord business, buying up roughly 200,000 homes to rent in recent years. Almost all of those purchases are in the South (57 percent) and West (33 percent) of the country, according to Trifon’s figures.

But the primary case study for this set up is performing quite well so far from Wall Street’s perspective. As ThinkProgress previously noted, that deal made a New York hedge fund called Blackstone the nation’s single largest landlord and gave the firm the chance to prove to the investment world that its new housing scheme could be a secure source of profit. While total rent collections on the housing units underlying that deal declined significantly from October to January, it is still outperforming analyst expectations in a variety of ways.

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