AJ LaTrace, Real Estate Investing Editor, Insider, joins Cheddar News to break down how private equity firms and professional investors are purchasing most of the affordable housing in America and pricing out hopeful homebuyers.

Opening Bell

Corporate Landlords Buying Up Affordable Housing, Driving Rents Up

joining us now to discuss and break this down is Adriana Trace real estate investing editor at Insider AJ glad to have you on this morning and kind of dig into this topic? Let's just start with this why our mobile home parks now being targeted by corporate investors. Is it really just, that's what's left here? Yeah, it really is kind of the final frontier if you will in real estate and there's been a lot of interest, uh, particularly in the last couple of years, especially with all the stimulus we've seen from covid relief going into all, all types of markets with stocks, crypto. And then of course, real estate and so, uh, with mobile home parks, uh, you're right, it's one of the most affordable places for people to live. And not only do we have interest from really big name private equity investors like Sam Zell, but there's been a trend even within, uh, I guess you take social media investors to get into mobile home parks. So we have all these kind of gurus if you will on Tiktok and instagram and different other different other outlets or social media, you know, preaching the gospel if you will and trying to tell others this is, this is the place to be. This is where to put your money. And it's been something that has been a big trend in investing in the last couple of years. Absolutely. I imagine part of what we're seeing on social media and even from investors who are sophisticated kind of, these private equity firms and professional investors. Part of the reason behind this is the pricing power it creates when you buy up the swaths of property. Let's talk about that. What kind of pricing power is this creating for landlords? We have to keep in mind that a lot of mobile home parks are typically owned by private individuals or uh, folks who've, where they've been in the family for many years. And so, um, people who have owned these properties for a long time aren't necessarily thinking about the very top dollar they can get for them. So when a private equity investor comes in and and purchases one of these parks, the first thing they see is his rent growth. And this is something we've seen in every basically every other asset class, whether that's, you know, apartments in a big city, uh, retail strip centers, industrial properties, particularly so in the pandemic, Um, where someone can come in. The first thing they can do is raise the rents and you know, in this case where do people go next? There's almost no other options out there, rent prices are through the roof and traditional kind of housing units. We have a graphic of, you know, showing a few moments ago, average one bedroom is like 1400. The average kind of, you know, trailer is about $600. So you can see the differential in terms of pricing there. We also had a graphic on a moment ago showed 22, Two million Americans at least 22 million Americans live in mobile homes? It's over 6% of the population. That's a critical number of people who are typically on the lower-income spectrum. And as we're pointing out a moment ago, cannot afford, you know, higher priced housing. So, so what happens to those who are being priced out at this point? That's a really tough one. I mean, you know, besides mobile home parks, one other place that a lot of people have been going to unfortunately is, you know, hotels and motels and and living there. And then some other cities have had different solutions to address the affordability issue. Like, for example, if you look in the phoenix valley, they've had these, I guess if you can call them like tiny home parks or kind of tiny home villages. Um and then, you know, other cities have actually, or even specific neighborhoods and H. O. S. Have looked into banning or outline private equity or investor purchases of of homes. So that way, the people who are buying the properties are buying the homes or people who are going to be the primary resident. Um So it seems like every different municipality or local locality are looking at different options, whether that's more housing, uh smaller housing, certain types of bands and in other ways to uh disincentivize this type of investment when you're talking about the solutions potentially here or or the action that said, that has been taken so far? It does seem relatively piecemeal individual municipalities, certain states, is there a broad kind of action that that can be taken here should be taken here is potentially on the radar here because this can become a major issue in this country, especially when you think about the reality of it leading to homelessness. I mean people living in motels is not a suitable solution, it's not even an affordable solution, you know, long term. Yeah, that's a tough one. I mean it seems like there hasn't been a ton of political will um at least on a national level to do something about this. And you know, one interesting example, there's a couple of interesting examples like for example, um in addition to private equity, there's been a lot of international investment in U. S. Real estate and and also in other countries too. And so for example in Canada, they have actually outlawed foreign buyers for a period. And then in Singapore they've created this almost kind of graduated tax that exponentially increases for foreign buyers who buy a second or third home. Um So there are other countries in other places who have instituted these nationwide type of ordinances or laws, but we haven't seen anything here, at least anything that's on the books or or upcoming unfortunately, no, when it comes to Congress, traditionally they are more reactive than proactive here. So to that end, you know, how will this potentially perpetuate the housing recession and crisis in America right now to the point maybe Congress takes some action, you know, reactively, if it gets that point, it's gonna, it's gonna continue to be a huge problem, especially for millennials like myself and, and gen Z years who are building their career and growing in their careers, looking to make the next step in their personal lives by buying a home. And um, you know, some people say, well, move to a different city, move to a different location and, and maybe, yeah, okay, sure, the pandemic and the work from home shift has allowed that to happen for some people. But then we have these little micro bubbles, for example, like you think about Boise, Idaho, that was the hottest city during the pandemic and now the market's starting to crash there and, you know, it's very disruptive to cities and uh, in other places when they get these massive bubbles. And I remember even seeing a story a while ago about a local and Boise had, like made a sign and was holding it out in public, like, please sell me your home because he couldn't compete against the cash buyers coming from California or wherever else who are moving out there. So, and, and who knows their their story in terms of their family could have lived there, their whole lives in general for generations, and now they're priced out of their own community that they know, um, just, just fascinating storylines happening around the country on this issue and they've been happening for the better part of the last year. I feel like it's only now that it's starting to come on the radar to what we're saying a few moments ago at a time where maybe this war is towards the end of it, and there's not much that we can do, we'll continue to kind of, follow the story and see where it goes, because it is one that I think is going to have a domino effect that we can see right now in parts of it, that we can't AJ appreciate your time and your insight, AJ Leatrice, real estate investing editor at Insider.