Meet Some Heroes of Capitalism

A blog about business and economics.
Feb. 4 2013 12:17 PM

Heroes of the Recovery: Single-Family Rental Operators

A single-family foreclosed home in Warren, Ohio

Photo by John Moore/Getty Images

The idea of wealthy people as bold, risk-taking job creators often doesn't live up to reality. The vast majority of business investment is internally financed out of revenues, and a huge share of financial market activity is essentially just gambling. This idea from JP Morgan is an exception. The bank wants its wealthiest clients to invest in a fund that will buy distressed single-family homes and operate them as rental units.

What's important and great about this is that, as Duncan Black says, it seems like it will probably fail.


Traditionally in the United States, single-family homes have been owner-occupied, and rentals have been in multifamily structures. Since not everyone is creditworthy, that's tended to mean that creditworthy people live in single-family homes and the less creditworthy live in multifamily structures. During the lending boom of the aughts, we developed exciting new technology of mortgage securitization to allow the noncreditworthy to become creditworthy. As a consequence, multifamily construction cratered and the homeownership rate soared. But that technology turns out to be the financial equivalent of hydrogen-filled airships, so now we've abandoned it. That's left America with single-family structures that don't have owners and adults who don't have dwellings. One great way to better use the resources we have available to us would be for someone to devise the technologies necessary to efficiently operate a large-scale, single-family home rental operation. But that's not the kind of technology you can test out in the lab. To know if you've developed the necessary management techniques, you really do need to go out and buy a bunch of houses and try it out. And there's a big risk—many decades of experience and accumulated conventional wisdom say it doesn't work, that renters lack adequate incentives to maintain a single-family unit properly, and monitoring their behavior is too hard.

But whether this is a good idea or not, the economy will clearly be better off if people try it. Even if they end up losing their money over the next few years, that will buy us valuable time to rebalance the nation's construction portfolio. So three cheers for risk-taking investors who want to put some money behind this notion.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.


Frame Game

Hard Knocks

I was hit by a teacher in an East Texas public school. It taught me nothing.

Chief Justice John Roberts Says $1,000 Can’t Buy Influence in Congress. Looks Like He’s Wrong.

After This Merger, One Company Could Control One-Third of the Planet's Beer Sales

Hidden Messages in Corporate Logos

If You’re Outraged by the NFL, Follow This Satirical Blowhard on Twitter

Sports Nut

Giving Up on Goodell

How the NFL lost the trust of its most loyal reporters.

How Can We Investigate Potential Dangers of Fracking Without Being Alarmist?

My Year as an Abortion Doula       

  News & Politics
Sept. 15 2014 8:56 PM The Benghazi Whistleblower Who Might Have Revealed a Massive Scandal on his Poetry Blog
Sept. 15 2014 7:27 PM Could IUDs Be the Next Great Weapon in the Battle Against Poverty?
Sept. 15 2014 4:38 PM What Is Straight Ice Cream?
  Double X
The XX Factor
Sept. 15 2014 1:51 PM Why Not Just Turn Campus Rape Allegations Over to the Police? Because the Police Don't Investigate.
  Slate Plus
Tv Club
Sept. 15 2014 11:38 AM The Slate Doctor Who Podcast: Episode 4  A spoiler-filled discussion of "Listen."
Brow Beat
Sept. 15 2014 8:58 PM Lorde Does an Excellent Cover of Kanye West’s “Flashing Lights”
Future Tense
Sept. 15 2014 4:49 PM Cheetah Robot Is Now Wireless and Gallivanting on MIT’s Campus
  Health & Science
Bad Astronomy
Sept. 15 2014 11:00 AM The Comet and the Cosmic Beehive
Sports Nut
Sept. 15 2014 8:41 PM You’re Cut, Adrian Peterson Why fantasy football owners should release the Minnesota Vikings star.