COVID-19 hasn’t been kind to renters. Eviction moratoriums have been a mixed blessing with ubiquitous political overtones. Homeowners with heavy mortgages experiencing job losses and furloughs have had similar unsettling experiences, but at least in these cases, government intervention has allowed for a stay on monthly payments for up to 18 months with options to forestall making up those delayed payments over several decades.
Who knows for sure what comes next for these people? Will there be future waves of the mutating virus? Will there be more mortgage and eviction consequences? It’s almost certain that these mutating circumstances will make for more stressful times as families try to anticipate and plan for the future, come what may.
When it comes to the housing market however, there is a more fundamental and seismic-in-scale shift that is occurring.
Not long ago, as president of a homeowners’ association in Columbus, I had to deal with an emerging and troubling trend. Homes were being purchased in the association development by “outsiders,” whose only intention was to offer their purchased homes as Airbnb lodging opportunities.
Our housing association was in proximity to Ohio State University and the Muirfield Country Club. Airbnb lookers were always interested in OSU games, PGA golfing events, weddings and family reunions which meant these homes would be revolving doors of collections of people with no allegiance to the neighborhood, its covenants, deportment or decorum.
Fears of noise, parties, loss of local control, and falling property values, prompted our association to quickly amend its bylaws to prevent such occurrences with hopes the amendments would hold up in court. But this example is likely just symptomatic of what’s to come in a new globalized housing market.
Consider this: A builder in the Dallas-Fort Worth area planned to build 1,500 homes, offering investor types 100 of the homes. As told in an article in USA Today, the builder told a real estate agent that on the first day demand was such that he sold 190 homes, and Chinese nationals were among the top buyers. As foreign buyers go, according to a report in that newspaper, “China is followed by Canada, India, Mexico and the United Kingdom as the biggest investors… (and) economists say you should expect to compete with those buyers, especially since a large percentage of foreign buyers tend to make all-cash offers pushing up home prices.”
Sometimes these “foreign” investors come from other states. The pandemic has fueled a trend of buyers from large urban areas buying up homes in rural areas, beach fronts, and ski and other vacation areas. Why? And how are these being paid for? In an alarming number of cases the answer is Airbnb.
Think of an investor from India, for example, who buys a nice home close to the slopes in Vail, Colorado. To him or her, this isn’t a home per se, it’s an asset. Maybe it’s a nice place to vacation for a week once every other year, but the business proposition is that the investment asset gets paid for by Airbnb renters. With incredibly low-interest mortgage loans the asset grows. It’s like investing in a high-quality and high-yield bond that will pay off big in 15 years. But these “foreign” buyers, whether from Mexico or Massachusetts, are pushing up the demand and prices of homes across the country and odds are that this will just increase.
CNN Business recently ran an article intitled, “Wall Street is buying up homes. The rent checks are too juicy to ignore.” Its content cited John Burns Real Estate Consulting saying that, “In the first three months of this year, nearly a quarter of all homes sold in the United States were going to investors.” It’s true, writ large, that today institutional investors make up a relatively small percentage of single-family rentals, but add in individual investors and the trends are noteworthy.
As evidence that this is becoming a global phenomenon, in the United Kingdom, according to the investment manager Schroeders, “the proportion of households that own their own homes went from a peak of 70 percent in the early 2000s to around 63 percent in the past five years.
When I asked my son, who happens to have experience in banking, wealth management and the technology that drives this new housing phenomenon, about all this his response was, “What’s making the market especially hot is the fact that the pandemic is pushing metropolitan buyers to work more remotely, and low rates mean investors look for yield elsewhere, so pooled rental homes, just like pooled mortgages, look sweet. Also, the most important dynamic is the backdrop of technology and its role as this all unfolds. Being able to list, update and remotely manage a rental house has changed the game, and short-term rental income far exceeds long-term rental income. That’s made every home an attractive target to produce yield, and that is driving up home prices for everyone. Airbnb has given the public an alternative to hotels, and this has mostly erased all the zoning laws in place around hotels. A corporation, or even a remote owner, is a very different kind of neighbor.”
When Airbnb becomes a mechanism for asset investment, and when corporate Wall Street wants to get in on the juicy home rental business, it’s not a good trend for individual home buyers in America.
The pandemic has changed individual and institutional views on what to own, where to own, and how to make money in this changed fiscal environment.
If all this sounds distant and far from Highland County, Ohio, so did COVID-19 not so many months ago. The future, as told in the car mirror, is closer than it may appear.
Bill Sims is a Hillsboro resident, retired president of the Denver Council on Foreign Relations, an author and runs a small farm in Berrysville with his wife. He is a former educator, executive and foundation president.