Blackstone Defends Its Role in Housing Recovery

NEW YORK ( TheStreet) -- Over the past year, Blackstone ( BX) and other Wall Street investors have been buying up thousands of single-family foreclosed homes in bulk and converting them into rentals, a business that has been viewed with skepticism by housing bears and with concern by first-time homebuyers who believe institutional investors are driving up home prices to unaffordable levels.

An editorial in the New York Times on Sunday argued that the housing recovery has been investor-driven and that "the pain and damage" from the housing bust will linger for a long time.

Blackstone, which buys single-family homes through its Invitation Homes subsidiary, disagrees. In a blog post Monday, it defended its role in the housing recovery, arguing that critics who blamed investors for rising home prices were wrong and ignored the positive role that private capital played in the market.

"We are proud of what we are doing in the housing market," Blackstone said in the post.

First, some context. Home prices rose 11% in the 12-months to March, the most since 2006. That topped a 9% gain in the 12 months to February, prompting concerns in some corners of the market that home prices may be rising too fast.

New home prices hit a record in April, with median prices rising to $271,600. The rise has been mostly driven by a changing mix of homes being sold. Builders are selling more expensive, bigger homes rather than cheaper homes for first-time home buyers.

First-time home buyers have also been locked out of the market due to tight credit conditions for mortgage approvals.

Even those who can get a mortgage are struggling to find a home in this soaring market, thanks to an unprecedented shortage of homes available for sale.

Concerns that investors are causing home prices to rise are overblown, the Blackstone post argued. "Blackstone is not buying houses in sufficient numbers to make an overall difference in house prices," it wrote. Blackstone through its subsidiary has purchased 29,000 homes, which pales in comparison to a housing stock of 115 million homes. Its purchase of 25,000 homes in the past year was less than 0.5% of 5.6 million in total home sales. It is also active in only 13 metropolitan areas.

Investors have also been criticized for causing a supply shortage in cities where they are active. But Blackstone argues that the shortage is mostly because homebuilders have failed to keep pace with population growth. "Over the past 4 years, the US has added only 700,000 homes annually (single- and multi-family) on average, while population growth and obsolescence require an estimated 1.5 million units to meet demand," it said.

Blackstone also notes the housing recovery has been broad-based and not just limited to cities where it is active. Home prices were rising by 19% and 10% respectively in Salt Lake City and Detroit, where Invitation Homes is not present. This is because home prices remain well below their long term averages.

In any case home buyers and investors do not compete for the same homes in the first place, Blackstone argues. "Invitation Homes only buys post-foreclosure homes, after all attempts at loan modification and other measures have failed. Moreover, these homes are often sold at auction for cash, requiring settlement in three days and often significant capital expenditures in fix-up costs. Few, if any, first time home buyers can do this."

Meanwhile, private investors such as Blackstone are playing an important role in stabilizing housing prices, the company says. Foreclosed homes that are left vacant for too long often deteriorate due to lack of maintenance, dragging down prices of other homes in the neighborhood.

Blackstone has invested $500 million and employed thousands of contractors to fix up homes, in addition to the cost of the home. "When neighborhoods improve and house prices stabilize or rise, this is a good thing -- fewer homes are underwater and homes are easier to sell, which is good for both sellers and buyers."

Finally, investors such as Blackstone were adding to the single-family rental supply and was making rent affordable for families. Blackstone homes are on an average rented out at a 30% discount to comparable multi-family homes, the company said.

-- Written by Shanthi Bharatwaj New York.

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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