Large corporations are buying rental properties and apartments, then raising the rent to maximum levels. This is the American way…big corporations buy whatever, in this case rental properties, and raise the price. How long will this be tolerated?

Originally posted on Quora May 18, 2022

As long as real estate speculation is not only allowed to remain profitable, in the absence of land value capture, but is actively encouraged by public institutions like the Federal Reserve and Uncle Sam himself. This is a major observation missed by most people complaining about private equity firms buying up housing stock. The public institutions you think will solve this problem created it in the first place. Governments created the four monopolies (land, money, patents and regulatory capture) by which wealth is transferred from the lower strata to the upper echelons. The cheap credit the Federal Reserve pumps into the economy overwhelmingly benefits the wealthy owners of equity (both in stocks and realty) at the expense of lower income strata savers and renters. Sure the pie grows bigger and the tide rises higher but some of those slices get smaller and some of those boats still continue to sink. Sure the Federal Reserve gives some crumbs to the 64% or so of owner-occupier Americans in the form of lower mortgage interest but the people who gain the most financially are on Wall Street or own multiple rental properties. So while lower rates provide higher returns to the owners of stock in the upper income strata they also guarantee lower savings rates for those living paycheck to paycheck with only a bank account to their name or workers whose retirement fund is a public pension heavily invested in treasury securities or the social security trust fund; inflation eats the rest. And while lower mortgage interest is a certain windfall for homeowners, landlords and speculators the world over, it is a losing proposition for renters for whom higher capital investment in real estate guarantees higher rents. Much of the fuss about gentrification and sprawl is at the behest of the Federal Reserve keeping mortgage interest low and inevitably making real estate speculation less risky and more profitable (Uncle Sam did the same thing with land grants in the 19th century and in the 20th century with with the FHA and HOLC). Some slices of the pie grow larger while other slices shrink; some boats rise higher while others sink deeper. This is the inevitable trade off of having artificially low interest rates: the distance between the haves and the have nots grows longer.