Buying a house was once primarily a private transaction. There were brokers, banks and other intermediaries involved, but it was still basically a deal between an individual seller and an individual buyer.
That was before large private equity firms in New York, San Francisco, Chicago and other financial centers realized the value of ordinary Americans’ homes – not Newport mansions or Beverly Hills palaces, but regular folks’ ranch houses and bungalows on regular folks’ streets – as investments. Housing, like the equity in small businesses, has been financialized.
While the trend began in cities, financialization of housing is not just an urban phenomenon. If you rent from a large private equity-backed real estate firm – the largest is Blackstone, and its reach extends from coast to coast and abroad – your house is not just your home. It’s a line item on a large, remote corporation’s spreadsheet. That’s as likely in Monroe County, Indiana, as it is in New York or Miami.
Upzoning will increase the intensity of investors’ interest in Bloomington’s housing stock — especially small, modest-priced houses in the core neighborhoods and the close-in subdivisions, because those houses offer the greatest opportunity for return on investment.
The housing speculator sees an old, small, unglamorous rental house on a small lot in Bloomington, which can be bought on the cheap, as an underperforming asset, to be converted from a single small rental stream into as many as 12, by tearing it down and replacing it with a quadplex. That’s enough return to justify rebuilding, even if the developer must apply to the Historic Preservation Commission and wait a few months for the privilege of demolishing the house. (The developer just needs to get rid of the current tenants.) It may not seem like a great opportunity, but developers have portfolios of thousands of homes, and the conversion opportunity afforded by upzoning makes this one a plum. And the rental revenue will leave the city, instead of circulating locally. Financialized housing drains wealth out of cities.
This is a nationwide trend. Bloomington may not be able to keep private equity-backed speculators out. But it doesn’t have to hand the city’s affordable homes to them on a plate.