Published by Forbes.com | March 20, 2025
Private equity is often blamed for the rampant increase in housing prices nationwide. Is this blame justified?
Some Wall Street investors have turned their attention to buying single-family houses around the United States, renting them out for a monthly return and then selling when it makes sense for a capital gain. In response to private equity’s involvement in the nation’s housing market, we hear regularly that it’s a “bad thing” for Wall Street investors to own and rent houses.
Some argue that Wall Street crowds out regular homeowners in favor of private equity’s participation in the market. That supposedly drives up prices and rents. Others argue that a professional class of investors is profiteering (a bad thing) off typical American households. Many don’t like it when Wall Street seems to treat housing as a transient generic investment vehicle in the same bucket as stocks and soybean futures. For all these reasons and more, legislators from both sides of the aisle have talked about passing laws against Wall Street participation in the U.S. housing market.
Is Wall Street ownership, management, and trading of properties such a bad thing? Not really, according to Ken Johnson, professor of real estate and finance at the University of Mississippi. Johnson says: “The critics are wrong, and their arguments fail basic economic logic. Most people (politicians included) are looking for a bogeyman to explain the current housing crisis, and Wall Street is the perfect scapegoat.”
Johnson argues that Wall Street investors bring much needed capital to incentivize developers to build more housing, thus helping to expand overall housing supply at a critical moment when many parts of the nation suffer from a “housing crisis.” Wall Street also brings improved pricing precision — more and better information analyzed by unemotional investment professionals. Greater pricing precision for any asset, including housing, reduces overall market risk. To put it another way, professional investors in the housing market deliver capital, pricing precision, and lower overall market risk for all — just as they do in other financial markets.
