Every American is feeling the bite of inflation. Groceries cost more, gas costs more, everything seems to cost more. This past week, the Federal Reserve raised interest rates in an effort to tame the highest inflation in 40 years.
The cost of rent is really through the roof. Residential rents across the country went up an average of 15% last year – nearly twice the overall inflation rate. That’s particularly painful for tenants, because according to Census Bureau data, they now often have to spend as much as half their total income on rent.
Why are rents rising so much? Well, it turns out that big Wall Street firms are playing a role, but we found the fundamental problem was years in the making…and will take years to fix.
Lesley Stahl: How much did your rent go up?
Justin Blocki: They attempted to raise it $400 a month.
That would have been a 40% jump for Justin Blocki and Brittney House. She’s a nursing student and he’s an occupational therapist in Jacksonville, Florida. When they first rented their apartment a year and a half ago, they were paying just over a thousand dollars a month.
Justin Blocki: I eventually came to terms with them for a 30% increase, which was $300.
Lesley Stahl: Still 30%–
Justin Blocki: I’ve never heard of anything like that.
Lesley Stahl: Do you know why your rent jumped that much?
Justin Blocki: They told me the market justified it. And they were right. Because I looked at 30 other apartments, and they were all way too– too much for us to afford.
Lesley Stahl: So when your rent goes up 30% what’s the impact? Are you having to give things up?
Brittney House: Yeah, our fridge is– does not look the same as last year before our lease.
Lesley Stahl: Really–
Brittney House: It’s– yeah–
Lesley Stahl: You’re really cutting back on groceries.
Brittney House: Yeah.
Daryl Fairweather: It’s pretty much universally true, rents are going up all around the country. But it’s even more severe in migration destinations. Like, the sunbelt of the country, Austin, Phoenix, Florida. A lotta people are moving there and there’s just more demand for rents.
Daryl Fairweather is the chief economist at Redfin, a nationwide real estate brokerage firm that pulls together real-time statistics on both the sales and rental markets. For example, their numbers show that rents increased 31% in Jacksonville last year, 40% in Austin, Texas.
Lesley Stahl: What’s causing this?
Daryl Fairweather: We are not building enough housing for everybody who needs a place to live. We built fewer homes in the 2010s than in any decade going back to the 1960s, and at the same time millennials are the biggest generation and they’re entering into home-buying age. Millennials aren’t living in their parents’ basement any more or shacking up with roommates, they want a place of their own, and we didn’t build any housing for them in the last decade because we are still so traumatized by the last housing crisis. We didn’t put any investment into housing.
In the economic crisis of 2008 and 2009, construction of new housing came to a grinding halt. But even when the economy recovered, home construction didn’t.
Lesley Stahl: So how big is the rental shortage in the United States?
Daryl Fairweather: The government has estimated that we are short about 4 million homes in this country, and that number is likely growing, especially since the pandemic.
Lesley Stahl: 4 million shy.
Daryl Fairweather: Yes. That’s the hole that we’re in that we need to build ourselves out of.
Lesley Stahl: That number, 4 million, is that mainly in the south and southwest? Or does that include New York City and San Francisco?
Daryl Fairweather: That’s the entire country.
With something as essential as housing in such short supply, you’d have to figure that Wall Street would see an opportunity, buying modest, single-family houses, the kind you’d see on any middle class suburban street, and then renting them out.
Daryl Fairweather: In places like Jacksonville, Atlanta, Charlotte, investors are buying almost 30% of the homes that are available for regular home buyers.
Gary Berman: This is a home we bought. This is 3518 Shiner Drive in Jacksonville.
Lesley Stahl: Right.
Gary Berman: This home is 1,700 square feet.
Lesley Stahl: How many bedrooms?
Gary Berman: Three bedrooms. Two baths. It was built about three years ago.
Gary Berman is CEO of Tricon Residential, a Toronto-based company that has quietly become one of the largest owners of single-family homes in the United States.
Gary Berman: So today, we own about 30,000 single family rental homes across the U.S., largely in the Sun Belt. And we’ve got probably about 75,000 people living in our homes.
Lesley Stahl: You are a multi-billion dollar company. You’re publicly traded on the New York Stock Exchange.
Gary Berman: Correct.
Lesley Stahl: And the–
Gary Berman: Toronto Stock Exchange.
Lesley Stahl: –Toronto Stock Exchange. I even read in one of your own documents that your revenue went up last year by 67%? Is that correct?
Gary Berman: Yeah– we’re expanding. I mean, when you think about it, we have an incredible amount of demand for what we do. So, Lesley, in any given week, we might have two or 300 homes available.
Lesley Stahl: For renting?
Gary Berman: For renting. And we get about 10,000 leasing inquiries a week.
Tricon is trying to buy 800 houses a month and there are companies even bigger. Invitation Homes owns more than 80,000 rental houses, American Homes 4 Rent close to 60,000. Some of the all stars of finance – Goldman Sachs, JP Morgan, Blackstone – have put hundreds of millions of dollars into these companies. They all offer rental homes online, and all focus on the sunbelt.
Gary Berman: Our largest– portfolio w– would be in Atlanta, in Charlotte, in Phoenix, in Tampa.
Lesley Stahl: And those are the cities that young millennials are flocking to?
Gary Berman: This is where Americans wanna be. We’re finding that Americans are moving from the Northeast, from the Midwest, to move to the Sun Belt because taxes are lower. It’s a friendlier business environment. It’s better weather. And so there’s a movement taking place. And the pandemic unleashed powerful nesting trends and work-from-home trends.
Lesley Stahl: Nesting trends?
Gary Berman: Powerful nesting trends. When we survey our residents, ‘Why did they move– to be with us?’ The number one reason is they want more space.
Lesley Stahl: Big investment companies like yours are being blamed for this huge increase in rents across the country. And you can set the rent any way you want, really, given the demand you’re talking about.
Gary Berman: First. I mean, corporate landlords represent 2% of all single-family rental housing. So there’s a lot more going on than just corporate landlords bidding up homes. It’s a very competitive and difficult environment.
It’s true that big investors don’t own nearly as many houses as mom-and-pop landlords, people who might have just a few properties. But big firms like Tricon do play a larger – and growing – role in the sunbelt cities where they’re active.
Rent increases are all over the map: 35% in New York, but just 9% in Chicago. 29% in Portland, only 10% in LA. And in only one big city were rents actually down last year: Kansas City.
Berman says Tricon strictly caps how much it will raise rent on existing tenants when they renew their leases.
Lesley Stahl: But let’s say, I had come in as a new renter here. Would the rent here be 30% more than it was about a year ago?
Gary Berman: It could be. Because it– we– when we come in and buy a home, we have to pay a market price for the home. And then we have to set a market rent, right?
Here are two examples of homes Tricon recently bought in Jacksonville. This one they’re charging 40% higher rent than the previous owner asked, this one, 30% higher.
These before-and-after pictures taken by Tricon show how they fix up many of the houses they buy. They also have a fleet of trucks and technicians to service them.
Gary Berman: This is– a standard Tricon home.
Lesley Stahl: And you put in the kitchen? These– you put in the appliances–
Gary Berman: This home was built three years ago. We put in about $15,000. Most of our homes are a little bit older. We probably put in about twenty or $25,000. This is very typical of what our product looks like when you move into it. It’s in move-in-ready condition. It’s broom swept.
Lesley Stahl: And if things go wrong– if there’s a leak–
Gary Berman: If things go wrong–
Lesley Stahl: We call you.
Gary Berman: If we have a leaky faucet, or the– you know, oven or microwave’s not working, you will call us. You’ll call, and our maintenance techs will come and– and service the home.
The houses Tricon and other investors are buying in places like Jacksonville are what might be called “starter homes,” usually selling for about $300,000. When one of those comes on the market, investors are ready with all-cash offers.
Heather Kruayai: I would say probably a third of the listings that I’m putting up are getting investor offers.
Heather Kruayai is a Redfin real estate agent in Jacksonville. She represents both buyers and sellers.
Heather Kruayai: You are seeing a lot of these Wall Street investors that are coming in. You know, you put a house on the market, and within an hour I’m getting offers full price, cash. And so these– the sellers are seeing that, and– “Oh, okay. Cash. We can close in 15 days.” It’s very enticing to people when they see that offer come across.
Lesley Stahl: So when you sell, are you having to stage the house? Paint it? Put furniture in, make it look really nice?
Heather Kruayai: Not now. It’s not necessary now in this– this way, the way the market’s going now. You really don’t need to do anything to your house to sell it. Typically the– investors never look at the home. Never.
Lesley Stahl: They don’t even look at the home?
Heather Kruayai: They never look at it.
That, plus the fact that investors often waive inspections, puts would-be first-time home buyers at a serious disadvantage. Before they can even see a starter house, it’s gone.
Justin Blocki: Most people our age are not gonna be able to have $350,000 in liquid cash.
Justin and Brittney, the young Jacksonville couple facing steep rent increases, are starting to lose hope they’ll ever be able to buy a home.
Even Tricon’s own presentation to investors says, quote, “homeownership is increasingly out of reach.”
Gary Berman: In our portfolio, the majority cannot buy a home. Cannot afford to buy a home or don’t have the credit to buy the home. So, for example, they may have student debt or they may have medical debt. And therefore, they can’t qualify to get a mortgage. And if they want access to a single family home which we think’s incredibly important, this is the best way to– for them to obtain it.
I think if you asked a lot of millennials, and that tends to be our primary resident– they would probably tell you, they don’t necessarily desire to own a home or to own a car. They’ve grown up in the sharing economy. And for what’s important to them is lifestyle, right? And so if they can move into this, what we call, a turnkey or a hotel ready home and have a low-maintenance lifestyle, that’s very compelling for them. Very compelling.
Lesley Stahl: We were told by the head of one of these big companies that people your age want to rent, that you’re not as interested in buying a house.
Justin Blocki: No. I mean, (LAUGH) I think the American Dream is owning your own property and having your own dirt that you own. And, that’s specifically why we moved here was to own a house.
Brittney House: I realize my first house is probably going to be a starter home. It may not be that dream house, but it’s a house. It’s a home. Now the– our dream is now unattainable. It’s– it’s very– it’s disturbing.
Daryl Fairweather: Most people desire that single-family home with the picket fence. And if they can’t buy it because they can’t afford it their only option is to rent it.
Lesley Stahl: Yeah, but the investor’s buying it.
Daryl Fairweather: Yeah, and they’re getting that wealth that normally, or in previous years, would’ve gone to the person living there.
Lesley Stahl: So what’s happened to the American dream? When we used to say that it meant owning a house. What’s the American dream now?
Gary Berman: Well, if we think the American dream is– is embodied in a suburban home with a yard and– and a white picket fence, then I think we’re making the American dream much more accessible.
Lesley Stahl: Rent your American dream.
Gary Berman: You can rent the American dream.
That is, if you can afford the rent.
Produced by Rome Hartman. Associate producer, Sara Kuzmarov. Broadcast associate, Wren Woodson. Edited by Sean Kelly.