There's a housing crisis in America. Everyone I talk to, in every city, talks about the crazy high cost of housing in their town.
There's also a student debt crisis. It costs too damn much to get a college degree so people either don't do it, or they do it and spend the rest of their lives paying for it.
It's a horrible choice for families, but it turns out it's a good bet if you're a Wall Street investor looking to make some money. A lot of money.
College housing for students is expensive. That, of course, means it is a juicy "market opportunity" for "market entities"—in other words, corporations who see an opportunity to make money. Kids who go to college need to live somewhere and that makes it what they call a "resilient market"—in other words, a sure bet for generating profits.
Private equity firms, one of the superchargers of skyrocketing concentrations of wealth, sees that market and they are cashing in.
A Business Insider reporter called to get my thoughts. He wrote a great piece about it.
Last year, he told me, the private-equity behemoth Blackstone paid $12.8 billion to acquire American Campus Communities, the largest developer and manager of student housing in the US.
That’s a lot of money, and they do it for one reason: to reap healthy returns on the investment. How they do it is a well-documented private equity playbook. They take on debt, cut costs, raise prices, and then when they’ve gotten everything out of it they can, they sell and walk away with a bundle.
Let me do some math. I’ll call it Cohen-enomics (so therefore possibly very wrong.) Blackstone paid $12.8 billion. Let’s say they want to make 5-10% (at least) on their investment annually!
5% is $640 million
10% is twice that (you do the math.)
That’s all money that could do other things, like lower housing costs, hire enough people to maintain the housing, install hi-speed internet, etc. etc.
But it’s the argument that they use to justify it all that I want to focus on: It’s not us, we can’t help ourselves, it’s the natural law of the MARKET: Supply and Demand.
Beliefs about the market are so deeply embedded in American culture that we forget we can stop and call bullshit on them from time to time (conveniently, I have a book coming out called CORPORATE BULLSH*T: Exposing the Lies and Half-Truths That Protect Profit, Power, and Wealth in America, so I’m feeling pretty emboldened to call bullshit on, well, bullshit.)
But here's how they lull us into "nothing you can do about it—it's the market" complacency about rapidly rising rents. The problem, they say is not enough supply. And the law of supply and demand dictates that high demand and not enough supply has to (has to!) translate into higher prices.
Gina Cowart, a spokesperson for American Campus Communities told Business Insider that "ultimately, affordability challenges result from not enough supply."
That's the same company that Blackstone bought for $12.8 billion to buy existing housing (not to build new housing to increase supply.)
I heard the same thing when I was in San Diego. We were trying to pass inclusionary zoning that would require housing developers to include a percentage of affordable units every time they built new housing. The developers called it 'natural affordability." The way to create affordability was, they said (over and over and over again), was to allow developers to build, baby, build. The magic of the market would magically bring prices down. Even our most progressive elected housing advocates bought it. It was just a basic truth. Like gravity.
Time to call bullshit.
Because here's the truth: They make more when prices go up. Pretty simple. They are saddled with debt they have to pay back (to investors.) But they charge enough to cover those costs and to generate pure profit. Doesn’t sound like a supply problem to me.
THAT is the way markets work. It's not an invisible hand, it's very visible if you can just look at who's spouting the bullshit.
Thanks for reading. If you got this far, share it with somebody.
Donald