Securitizing suburbia : the financialization of single-family rental housing and the need to redefine "risk"

Abstract

Since the foreclosure crisis, a handful of private-equity backed real estate companies have purchased over 200,000 single-family rental homes throughout the nation. Originally, these companies planned to hold the properties until the real estate market improved and then sell the homes to individual buyers. However, they soon realized that they could generate higher returns for investors by operating the units as rentals, issuing debt securities backed by the rental incomes, and selling equity securities (stocks) in the global exchanges. As a result, the previously "mom and pop" industry of single-family rental housing is now, for the first time, financialized within the global market and institutionalized by an emerging oligopoly of large-scale rental companies. This research examines the rise of single-family rental housing as an asset class, with a particular focus on the construction, mitigation, and management of "risk." By analyzing investor disclosure documents, interviews with industry actors, quarterly earnings calls, and market reports, I show how the financial industry constructed a dominant discourse of financial risk focused on maximizing rental yields and home price appreciation, minimizing maintenance costs, and reducing political opposition. I argue that the ability of the financial industry to "self-regulate" access to capital through internally negotiated legal structures, disclosure requirements, and agreed upon norms of "trust", shifted the burden of risk from investors onto tenants, prospective homebuyers, and local communities. To contest the financial industry's dominant risk discourse, I use quantitative, qualitative, and geospatial analyses to propose alternative risk assessment tools and strategies that redefine whose risks should be mitigated and who should do the mitigating. Using Los Angeles County as a case study, I found that middle-income neighborhoods with higher percentages of African-American residents and lower home values are disproportionately impacted by the increasing institutionalization and financialization of single-family rental housing. Additionally, tenants renting from the largest single-family rental companies face aggressive rent increases and greater maintenance responsibilities. Reframing "risk" not only better protects tenants and prospective homebuyers, it also interrogates the intersection of financial regulation and community development, recognizes the contradictions of planning communities without attempting to plan economies, and helps advance a more proactive vision of economic justice and economic democracy.