I recently saw a law review article quote an article with the headline: “Are Hedge Funds And Equity Funds Driving Up The Cost of Housing?” The article wrote that there is a “more plausible hypothesis behind the housing affordability crisis—namely, that hedge funds and private equity firms have been buying up properties that would otherwise go to households, creating an artificial scarcity in real estate markets, and thereby driving up rents.”
But the article’s own data suggests that even if such investment does more harm than good, it is not a significant cause of rising housing costs. Why? Because nearly every example of alleged investor dominance comes from a low-cost city: the author mentions Springfield, Kansas City, Richmond, Jacksonville, and Charlotte as examples of cities with high levels of investor demand for housing- all cities with low-to-moderate housing costs. And what cities does he not mention? High-cost cities like San Francisco.
*The article does mention that according to one study, “in New York City… a ten percent increase in concentration is correlated with a one percent increase in rents. But it does not suggest that such an increase a) has occurred or b) is relevant to hedge funds or institutional investors.
