After the U.S. housing market crashed in 2007, a few Wall Street investment firms cracked the code for how to turn homes into a tradeable asset class worth billions.

A handful of giants led by private equity firm Blackstone were the frontrunners, snapping up single-family houses in U.S. foreclosure auctions and apartments in firesales launched by Europe’s right-wing governments, as EU-imposed austerity measures forced cities like Madrid to sell off social housing for pennies on the dollar.Scooping up whole suburbs of distressed homes on both sides of the Atlantic, Blackstone became the world’s largest landlord in a matter of years. First, it set up various rental companies—Invitation Homes in the U.S., or Fidere in Spain—before selling off shares in these companies to other investors or packaging together thousands of tenants’ rental income into obscure financial products.

While Proptee offers you a share of one house’s rent, private equity sold investors the chance to get their hands on thousands of homes’ rent cheques bundled up together. For Blackstone, it paid off, as wealthy backers poured billions into these schemes: the $88.4 billion of investor capital it held at the time of the 2007 crash has today ballooned to $619 billion, and is rising.

In 2021, the template these firms drew up is being put to work by every cash-rich copycat, ranging from ‘PropTech’ apps like Proptee to pension providers Legal & General (who got planning permission for more than 6,000 new-build UK homes during lockdown), new for-profit social landlords like the UK’s Sage Housing group (also owned by Blackstone), and even philanthropic institutions like Swedish multinational Akelius.

Raquel Rolnik, the former United Nations’ Rapporteur for adequate housing, says the ever-broadening gallery of financial actors and products means the coming fallout for housing and homelessness will be truly global, and further impacts will be ‘complex, abstract, and invisible’. By phone from Brazil, she says: ‘I think we are living through a new wave of the financialisation of housing.’

The last decade offers a grim lesson in what the consequences could look like. The raid by private equity after the 2007 crash meant prospective homeowners’ hopes of getting a cheap foot on the ladder vanished, as Wall Street agents outbid young families. In the recovery years after past recessions, first-time buyers rose with the housing market, but from 2010, the entire wealth uplift was captured by financial actors, according to research by Georgia State University.

Yet renters were harder hit, squeezed by their new corporate landlords whose mission it was to maximise investor returns by hiking rents and cutting maintenance costs, becoming both brutal and absent landlords in the process. Former UN housing expert Leilani Farha has ridden to the fore, accusing Blackstone of human rights violations (claims that Blackstone has disputed, at length).

One favourite tactic is ‘renoviction’: to launch a series of surface-layer modernisations of apartment blocks that allow investors to skirt tenants’ protections, evict residents, and gentrify neighbourhoods at speed. The upshot of their investment is renters left in harsher, more precarious tenancies, and an accelerated hollowing-out of working-class communities.

Although no one saw Covid coming, private equity had nevertheless prepared for an economic slowdown in 2020, raising nearly $2.5 trillion in ‘dry powder’–cash banked from investors but unspent when economies began closing down. This is a near-unfathomable war chest, exceeding the GDP of Italy, with which to pillage the global economy.

Wall Street’s encroachment into housing, through subprime lending and CDOs, triggered the Global Financial Crisis. However, the lesson learned by its perpetrators was not to retreat but, instead, to go further. The investor orthodoxy now says that during the last recession they were not aggressive enough, missing opportunities to buy bottomed-out property by erring during the worst days of the crisis.
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Any thought that private equity was losing interest in the model it created, amid rising competition, has been dispelled by Blackstone’s $550m swoop for a series of U.S. trailer parks, according to Desiree Fields, an academic from University of California, Berkeley, who has studied these firms in Europe and the U.S.

But there is a time lag between crisis and acquisitions, as investors figure out where the bottom of the market is before paying out for homes, says Fields. ‘They are waiting and waiting for the real distress to hit in residential real estate, and we haven’t quite seen that yet.’

But we’re starting to. Since the lowest depths of the Covid crisis, investment firms Axa and QuadReal Property have spent over £1 billion buying more than 2,500 homes in the UK alone.

Beneath it all, the ‘long-term fundamentals’ on which this is all rests are, effectively, the secure knowledge that the chronic under-supply of housing will continue, keeping property values and rents high.
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In the UK, as mega-investors have made clear, Brexit was no big problem, and they remain bullish on British property. The only political event that caused a pause was the 2019 General Election–the rare threat that a left-wing government might truly deflate a housing market running hot for decades, and take measures to fix the housing crisis.

That’s passed now, and investors can rest assured that the government will not jeopardise their business model. ‘I think the election was helpful for clarity,’ Blackstone’s president Jon Gray told Bloomberg.

For all that is different about this crisis from the last, the response from politicians remains one predictable factor, says Rolnik. Conferences already organised by the World Bank and the Inter-American Development Bank promote ways that policymakers can liberalise their rental sectors to welcome investment in global finance, and policy deregulation and new rafts of legal instruments like Real Estate Investment Trusts usually follow soon after. ‘We have seen this movie. We have seen this movie several times,’ she adds.

For tenants, the upshot will be counted in rent-gouging, overcrowding, and homelessness. ‘We need absolutely to reform the whole logic of housing being, more than anything, a financial asset,’ says Rolnik. ‘Cutting out the links between financial actors and housing: it’s quite the opposite of what has been done throughout the last crisis.’