Where investors invest

One argument I have run across recently is that the high cost of housing is caused by mysterious corporate investors are buying up real estate and forcing up the cost.

The stupidest version of this argument is that investors are hoarding all the real estate. Why is it stupid? Because corporations like to make money, and a corporation that doesn’t sell or rent out real estate is making no money from it.

A more sensible version of the argument is that the existence of investors adds demand for housing, and thus that their presence thus increases housing costs.* But even if this true, are these investors really a significant factor in the housing market?

In today’s Washington Post, an article supplies data for 40 metro areas. If investors are really the problem, one might think that the most expensive metros have the highest investor share. But this is simply not the case. In San Francisco, only 6 percent of for-sale houses are being purchased by investors (about the same as the 2015 share). In metro New York and Los Angeles, that share is around 10-11 percent. The most investor-heavy markets are in growing, medium-cost Sun Belt markets like Atlanta (25 percent), Charlotte (25 percent), Jacksonville (22 percent) and Phoenix (21 percent).

And within those markets, investors are not buying in the most expensive areas. In Atlanta, the highest investor shares are in the lower-income Southside, and low and moderate-income southern and western suburbs. In Jacksonville, the mostly lower-income Northside and the working-class Westside have higher investor shares than the more middle-class Southside. This pattern seems to hold in less investor-heavy metros as well: even though some affluent Manhattan zip codes have high investor shares, most of the high-investor zip codes are in East Harlem, the South Bronx, and other poor areas.

*I note, however, that investors may be a result of high housing costs more than a cause; if housing was not profitable, few would invest in it.