Words by David Jaffee
Jacksonville, like many other communities across the country, is experiencing an affordable housing crisis. Over the past year, according to Redfin real estate brokerage firm, the average rent in Duval County has increased by 31%. Close to 50% of all Jacksonville renters are cost burdened (spending greater than 30% of income on rent). Jacksonville ranks consistently in the top 10 among major metropolitan areas on almost every measure of rising housing costs. When 60 Minutes devoted a segment to this issue earlier this year, they chose Jacksonville as the city to profile.
The conventional wisdom about the affordable housing crisis is it’s nothing more than the inevitable result of excess demand and insufficient supply. A seemingly natural market response generating rising housing costs.
In the case of Jacksonville, more specifically, the claim is that many people are moving to Florida into communities like Jacksonville for various quality of life considerations, and the increasing demand for housing is putting a strain on the existing housing stock. It all comes down to a simple matter of supply and demand and the mechanical laws of the market. A recent piece in the The Florida Times-Union summed up the housing crisis this way: “Low inventory, a flourishing housing market and exponential population growth have caused rental prices in the Sunshine State to explode.”
While this narrative may be consistent with the free market fantasy one learns in Economics 101, it conveniently omits one of the most significant factors responsible for both rising demand and prices—the role of institutional investors and private equity firms. There is nothing mysterious about large private corporate entities buying swaths of single-family homes (SFH) and multifamily apartments and bundling them into their investment portfolios. The SFHs are converted into rental properties and the multifamily apartments are managed as cash cows.
This is all part of a larger trend over the past 30-plus years known as “financialization” which converts various forms of property into asset class investment vehicles for wealthy investors. It is now the dominant ownership trend in the rental housing market. The acquired properties are converted into income generating assets organized to maximize profit and provide healthy returns for investors.
Once this factor is included in the analysis, the simple free market, supply and demand explanation offered in the mainstream media requires major revision.
For starters, one needs only consider the fact that over the past two years the percent of SFHs purchased by institutional investors in Jacksonville went from 12.04 in 2020 to 29.56 in 2022. In some communities (such as ZIP codes 32206, 32208, 32209) the percent is above 40%.
The consequences of this land grab should be clear. Realtors say first-time home buyers are unable to compete with corporate firms offering above the asking price, financed with cash. As these potential home buyers see their repeated offers refused alongside an increasingly dwindling supply, many must settle for renting the SFH they had originally hoped to buy, now paying rent to the very institutional investors that have indirectly thwarted their dreams of home ownership.
So, yes, supply and demand factors are at work but not in the way typically described. Corporate investment firms are demanding and securing SFH properties at record rates, converting them to rental properties, thus constricting the available supply of SFHs for individual buyers.
The larger argument that the affordability crisis is due to a shortage of housing supply generally is also difficult to sustain. Builders, developers and contractors represent powerful economic interests in Jacksonville and Florida as a whole. Apart from exclusionary zoning for SFHs, there are few restrictions on this sector of the local economy. Jacksonville is builder/development friendly. In a recent report and analysis by Up For Growth on “housing underproduction” (including data as recent as 2019), Jacksonville ranked 174th out of the 800 communities included in the study, with a surplus rather than deficit. And yet, Jacksonville is consistently ranked among the top 10 major metropolitan areas in rising rent and housing prices. Obviously, housing stock is an inadequate explanation. The question is not the total supply of housing but rather who owns and controls the housing stock, for what purpose and its affordability.
The escalating rents Jacksonville tenants are experiencing are not the product of some automatic market mechanism, as many assume. Rental rates are set, often arbitrarily, by corporate landlords who exploit the opportunity to maximize cash flow and provide the return on investment expected by their shareholder clients.
This is particularly clear in the multifamily apartment sector where tenants have seen, over the past two years, monthly rent increases of $300-$400. These increases often follow the acquisition of apartment complexes by private equity investment firms who then install apartment management companies to enforce the new lease conditions. As one management company promoted to institutional investors, “[we provide] acquisition assistance and due diligence services including unit by unit inspections, market surveys and cost analysis. Our team will focus on areas of income such as maximizing rents, ancillary income collections and utility charges.” In response to a complaint on the website about the sharp rise in rent on lease renewal, the same management company explained, “We have a fiduciary responsibility to ensure that pricing for our homes is in line with market conditions.”
Market conditions, in this context, means what they can get away with in service to, and in meeting the expectations of, their corporate clients.
This is, again, where the rental housing market bears no resemblance to the abstract fictional market portrayed in economics textbooks. Housing is not a discretionary commodity that buyers can take or leave depending on price. Physical shelter is a human need, some would say a human right that people depend on for their physical, material and emotional security.
This distinctive feature of the housing “market” has not gone unnoticed by the institutional investors in their pitch to wealthy clients. Human dependence on physical shelter is a business opportunity to be exploited, as described here by a leading multifamily investment firm:
“The premise behind the growth and popularity of the multifamily rental industry is simple—people need a place to live… the durable cash flow and appreciation that apartment properties provide have made this asset class the most attractive real estate investment… The expected inflation will only drive rents higher over the next couple of years…A typical scenario consists of renovating and upgrading dated apartment interiors and common areas, creating an opportunity to push rents.”
The picture should be clear. Corporate landlords are beholden to their investor clients; the management firms are beholden to their corporate landlord clients; and at the bottom of the priority pyramid are the renters and tenants struggling to retain some semblance of housing stability.
The flawed market explanations for the affordable housing crisis will also generate equally flawed policy proposals. If one assumes the affordable housing problem is simply due to an insufficient supply of housing in relation to demand, the solution is to increase supply. If one also assumes that only the private sector can increase that housing supply, policies will be aimed at incentivizing private actors with subsidies and tax breaks to make it profitable to build more capacity. This is one reason why so many establishment and corporate figures embrace this simple market explanation; the policy implications favor their interests.
Once again, this assumption of a magical market solution is fallacious – that by simply increasing supply in relation to demand, housing costs will automatically decline. But the housing market is not a competitive market. The concentrated property ownership and pricing power fueled by the corporate landlord invasion will nullify any impact of increased supply. Further, there is no guarantee, and there should be no expectation, that housing builders and developers have any less interest in capturing profit opportunities than any other market players. The net result is public subsidies that further enrich property owners without expanding affordable housing options.
This brings me to the main and final point. There is no market solution to the affordable housing crisis. The market, as it operates in the real world, has created the crisis. Therefore, policy solutions must be aimed at insulating and protecting housing from market forces.
David Jaffee is a professor of sociology at the University of North Florida. He is currently directing the JAX Rental Housing Project in the Northeast Florida Center for Community Initiatives at UNF.
For more information, visit jaxrentalhousingproject.domains.unf.edu. Jaffee welcomes email communication from renters/tenants on their housing experiences in Duval County at [email protected]