A recent Wall Street Journal report that institutional investors were buying single-family homes as rental properties spurred outrage from populists across the political spectrum, from conservative author and Ohio Senate candidate J. D. Vance to socialist magazine editor Nathan J. Robinson. One common phrase appeared in many of these condemnations: that institutional investors were depriving the working and middle classes of a chance to “build wealth” through homeownership.
This conventional wisdom that homeownership ought to be a chance to build wealth deserves scrutiny, along with related notions, such as that renting a dwelling means throwing money away. The prevalence of such ideas itself illustrates a disordered investment marketplace. In a free market, asset prices adjust so that no asset remains a clearly better investment than another for long. If buying a house consistently offers better returns than, say, renting a dwelling instead and putting the money saved into the stock market, this can be due only to market distortions.
Read Full Article »