The Real Culprit Behind Soaring Housing Prices
Across North America, home prices continue their relentless upward trajectory, creating significant affordability challenges for prospective buyers. While politicians frequently point fingers at large corporate investors, economic analysis reveals a different, more complex reality behind the housing crisis.
Misplaced Blame on Institutional Investors
Political figures from across the spectrum, including U.S. Senator Elizabeth Warren, California Governor Gavin Newsom, and former President Donald Trump, have targeted institutional investors like Blackstone, Invitation Homes, and JPMorgan as primary villains in the housing affordability narrative. These politicians claim that corporate entities purchasing thousands of homes are "crushing the dream of homeownership" by removing properties from the market.
However, housing economist Stephen Slivinski presents compelling counter-evidence. "They're turning properties into livable places," Slivinski explains. "That's not something that would have happened if not for their presence."
The Rehabilitation Role of Corporate Investment
Institutional investors typically acquire properties that most individual buyers avoid—homes with significant structural issues, broken plumbing, roofing problems, and other major deficiencies. These companies possess the capital, expertise, and efficiency to rehabilitate properties that would otherwise remain uninhabitable.
"You need someone who has the capital to be able to resuscitate these properties before they can be buyable or livable again," Slivinski notes. The American Institute for Economic Research supports this perspective, finding that house prices actually fell in markets with greater institutional ownership.
The Regulatory Burden on Housing Development
The true driver of housing price increases lies in government regulations, which now account for nearly a quarter of new home construction costs. The permitting process in most American cities has become so convoluted that obtaining simple approvals can take months or even years.
Slivinski highlights the fundamental economic principle at play: "You have a smaller supply; you have higher prices." This regulatory burden creates artificial scarcity in housing markets, directly contributing to price inflation that affects buyers across income levels.
Case Studies in Regulatory Inefficiency
California provides particularly stark examples of regulatory dysfunction. One Sacramento project required 22 years just to obtain necessary approvals, with permit costs reaching $93,000 per house. "You can't meet the market demand if you are taking 22 years to bring a community to market," a builder in the region complained.
Even in traditionally business-friendly Texas, bureaucratic obstacles persist, particularly in Democrat-run cities. Dallas attempted to streamline its permit process by consolidating housing bureaucrats in one building, only to encounter a paradoxical situation where the permit department itself lacked proper permits, forcing officials to reverse their consolidation efforts.
The Economic Reality of Housing Markets
"That's Economics 101," Slivinski concludes regarding the relationship between supply constraints and price increases. "None of the proposals that have been put forward by Warren, Newsom or Trump are going to change any of that."
The evidence suggests that addressing housing affordability requires fundamental reform of regulatory systems rather than scapegoating institutional investors who actually contribute to housing stock rehabilitation and improvement.
