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It is hard to buy a house.
It has been hard to buy a house for a while now.
And the other day I heard a story of someone who I think might have gone further than anyone else in that quest.
James Lawrence.
James is your classic New Hampshire guy.
He likes the cold, likes the mountains, and he likes his girlfriend's cats.
Lorelai and Rory.
Love it, Lorelai.
Yes, they are named after the Gilmore Girls.
Amazing.
In 2019, James was in a bit of a tough spot, housing-wise.
Yeah, James is in the National Guard.
Yes, sir.
You definitely do not have to call me sir, by the way.
It's just how we talk.
And the reason he was in a tough spot was because recently he'd gone off to do this National Guard officer training all the way in Missouri.
And while he was away, he'd given up his apartment to save money.
Which makes sense.
But when he came back...
My 900 a month apartment in Portsmouth had gone up to 1500 1600, 1700 a month in the city and I'd gotten priced out.
So James, like many people these days, moved back in with his parents.
But they were far away, like hours from his school and his job at the front desk of a hotel.
And so, in the fall, he had an idea.
Instead of trekking hours every day, I rented a campsite where I just set up one of my tents and I was literally living out of my car while going to work, while being in the National Guard, while going to school.
This was okay for a little bit, but one night, James was sitting around the campfire...
And I was probably on my second IPA when I realized, like, what am I doing?
This is ridiculous.
It was right then and there that James had a realization that many, many people have had before him.
He was going to get a place of his own.
He was going to get a mortgage.
He was going to spend his money not on rent, but on his future.
So I was like, oh, yeah, this is great.
I'm just going to buy a condo.
It's going to be great.
You know, I have a little bit of money.
I have the VA loan option.
But then, like many bright-eyed and bushy-tailed prospective homeowners, he met the reality of the real estate market.
Oh, there's listings.
Oh, that's something I can't afford.
Or that's an hour away.
Or that, you know, it needs work.
The main sticking point, though, was the down payment.
He just didn't have enough to compete.
And then it got worse.
COVID hit the housing market, went wild.
Rich Bostonians were coming to New Hampshire paying all cash.
Yeah, now there was no way James could compete.
Unless, unless he somehow figured out how to get his hands on a wicked big down payment.
So he came up with a kind of extreme plan.
Get deployed.
Because the money's really good.
And if he went someplace a little bit dangerous, it could also include hazard pay.
Cherry on top, all that he earned would be tax free.
And you know what?
He did it.
I am currently stationed in just outside Djibouti City, Djibouti, on the east coast of Africa.
You shipped off to Djibouti to afford the down payment to a house?
Yes, sir.
100%.
Hello and welcome to Planet Money.
I'm Erika Barris.
And I'm Nick Fountain.
Housing is too expensive.
It's pushing people to extremes.
Democrats have noticed this, noticed that talking about it plays well with voters.
And now, in this midterm election year, President Donald Trump seems to be focused on it too.
Yeah, his administration has recently started talking more about affordability.
And they're taking action with two new initiatives that aim to make buying a house easier.
Today on the show we're going to take a close look at those two moves and ask will they work for James and for all of us?
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James's story might be the most extreme example of someone trying to get into the housing market that I've heard.
Like, shipping off to Djibouti to get that tax-free pay?
He fought for that.
100%.
Like, fought hard.
Like, I had to get waivers and meet with colonels and get doctor's approvals.
But James doesn't actually think what he's doing is that extreme when he tells his fellow millennial friends about the lengths he's going to to buy a house.
They're all like, yep, that sounds about right.
Sounds about right.
Shipping off to Djibouti to afford a down payment for a house.
Sounds about right.
Yeah, they're they're they're like, yeah.
That makes sense.
Yeah, it makes sense.
If you look at the median age of first time homebuyers these days, it's at an all time high.
40 years old.
James's age.
In the early 90s, it was 28 years old.
Now President Trump has said he does not want to bring the price of existing homes down because for everyone who already owns a home, that is a significant part of their wealth and he doesn't want to hurt them.
Yes.
In fact, yesterday Trump said he quote wants to drive housing prices up for people that own their homes.
We're going to keep them wealthy.
We're going to keep those prices up.
We're not going to destroy the value of their homes so that somebody that didn't work very hard can buy a home.
Still, a White House spokesperson told us that the president is committed to exploring every tool possible to improve housing affordability.
And the housing affordability proposal that the Trump administration has attached the most fanfare and details to is about leveling the playing field.
Yeah, it has to do with a premise that you have likely heard.
That big Wall Street investors are buying up single-family homes and those deep-pocketed investors are impossible to compete with.
Of all the popular ideas out there on why housing prices are so high, this is a big one.
In the world of politics.
It's been mostly a thing you've heard from politicians on the left though,
But last week, President Trump signed an executive order.
I have it pulled up right here.
It is called stopping Wall Street from competing with Main Street homebuyers.
And last week at his big speech in Davos, he talked directly to those Wall Streeters.
Many of you are here.
Many of you are good friends of mine.
Many of you are supporters.
Sorry to do this to you.
I'm so sorry.
But you've driven up housing prices by purchasing hundreds of thousands of single family homes.
So we wanted to find out.
Will this policy help people like James when he gets back from Djibouti this summer?
To figure that out, we needed to understand how many houses institutional investors are actually buying, what they're doing with them, and how that's affecting prices.
So we called up Caitlin Gorbach, who co-wrote one of the first economics research papers.
Looking at this,
How you doing?
I'm doing well.
It's been a crazy week to see my research suddenly so timely and relevant, but I don't regret it.
Yes, timely and relevant.
In fact the day we talked to her, Caitlin was getting ready to fly to Washington DC to talk about her paper in front of Treasury Department economists.
But that was on the schedule before any of these policies came out.
Do you think the room is going to be more full given recent news?
I don't know.
You'll have to follow up with me on that next week.
Caitlin started looking into the subject when she got her first professor job at UT Austin.
It was 2022, on the heels of the pandemic and one of the sharpest rises in housing costs ever.
And she and one of her co-authors were having lunch talking about how so many people were blaming big institutional investors, these giant Wall Street firms with access to tons of money for the bonkers cost of housing.
We were thinking of the perspective of like New professors who have no money, could not even hope to buy a home.
Sure.
And so I was thinking, as a renter, this is a huge boon.
A boon.
A good thing.
Because institutional investors weren't just buying up houses and sitting on them.
They were converting them into rentals, which meant there were more rentals out there for people like Caitlyn.
More supply.
So Caitlyn thought.
Rents should go down.
With that in mind, Caitlin set out to research the actual impact of these big investors buying up properties on rent prices and on home prices.
And the first thing she needed to figure out was, was this even happening on a large scale?
Like how much housing had these big investors bought up?
So she started sorting through a database of basically all home sales in the US for more than a decade.
Like every home that was sold.
And then tried to figure out who were the buyers of the greatest number of homes.
She sorted by most frequent buyer.
Collapse by name.
And it came up with.
Wait for it.
Like John Smith.
Yeah.
Yes.
Of course, the biggest homeowner in America by name is not landlords or us or some Wall Street company.
It is James or Michael or Robert Smith.
Finding all the homes that big institutional investors had bought up was going to be harder than that.
It was going to take some sleuthing, like maybe hundreds of hours searching corporate records, looking through legal filings, trying to identify the big landlords and then trace them to their cryptically named shell companies that were buying houses.
It's like code breaking and investigative journalism.
Yes.
Let's make a movie about you guys.
Yeah.
Who would play me?
Not Nicolas Cage, but this does feel like his genre.
In the end and we should mention this is a working paper not officially published yet and only includes data through 2022 she calculated the share of all housing units owned by these big Wall Street firms.
Yeah, so to the best of our abilities.
Right, acknowledging that we probably didn't find every single home.
The ownership share as of 2022 is about 0.3% of all housing units in the United States.
Very small.
Quite small, yes.
That's of all housing units.
If you look at all the single-family homes and townhomes for rent, almost 3 are owned by big institutional investors.
The percentage goes higher if you look at just purchases instead of ownership.
Caitlin found that from 2010 to 2022, institutional investors were responsible for 5 of single-family and townhome purchases nationwide.
But...
And this is important.
She found a lot of geographic concentration.
Areas where these Wall Street companies have bought a lot more homes.
Places like the suburbs of Atlanta, Charlotte, Houston, Phoenix.
You know, Sunbelt cities with nice suburbs and growth potential.
For example, there's a census tract in San Antonio where these investors own more than 12 of all housing units.
And almost a third of these single family and townhomes.
And we should say there are lots of different ways to crunch the data, and other reviews of it have come up with different, and sometimes higher, estimates of ownership by big landlords.
Caitlyn focused her investigation on the specific group that you hear Trump saying he wants to ban from buying up properties large institutional investors.
But regardless, Caitlyn and everyone agree, the issue is concentrated here, in these Sunbelt cities and suburbs.
That's where that idea that big companies are buying up a lot of properties, it is very real.
So the next question Caitlin wanted to figure out was in the places where these big institutional investors were buying up the most real estate, were rent prices and housing prices lower or higher than in similar neighborhoods?
And she said the answer was yes.
Basically, it depends on when you were talking about, what time frame.
For example, there was a period when the industry was first kicking off, that rents fell in neighborhoods with a lot of houses owned by big investors in comparison to similar neighborhoods.
This was in the aftermath of the housing crisis.
It was investors' first big foray into becoming big landlords.
And what they were doing was buying up foreclosed properties that had been owner-occupied and converting them to rentals, increasing the rental supply.
In other words, Caitlyn found evidence that her hypothesis that this would be a boon for renters was right.
And she found a few years later.
There was this period when in these Sunbelt neighborhoods with lots of these large landlords, the sale price of the houses actually fell.
So the opposite of what people fear.
She says this surprised her.
She still doesn't know exactly why it is.
But she pointed us to some other research that she says might help explain it.
Basically, as more renters came into neighborhoods, they changed them.
You have a kind of a diversification effect in that The people who move in, the renters who move in to neighborhoods, tend to be younger, more minority status, lower wealth.
And so that's really a story of rentals unlocking neighborhood opportunity for a subset of renters who couldn't have bought into that neighborhood.
And so if those renters look very different from the incumbent homeowners and they value different local goods and services, then you end up seeing out-migration of some of the incumbent homeowners as well.
Caitlin says she's hoping to study this more to figure out what exactly is going on.
So that's two different periods Caitlin discovered when housing prices were lower in areas with more institutional ownership.
In one, rents were lower.
In the other, sale prices were lower.
But Caitlin did find one period in recent history when areas with high concentrations of large investors saw both higher rents and higher sale prices.
Housing markets went crazy during COVID.
Sure, bananas.
Yeah.
That's one of the technical ways that we would describe it, yes.
She thinks part of this could have been just a technological advantage.
The big landlords had fancy and maybe not even legal pricing software that helped them anticipate what people would pay to move to bigger homes in the suburbs during the COVID housing scramble.
They just have a better finger on the pulse of what the renters are willing to pay than the mom and pops.
And so they're going to get a lot closer to my high rent than maybe a mom and pop landlord would right.
Still, she says, even in the bananas period it's hard to tell how much the higher prices were because big landlords were in the mix and how much was just because the neighborhoods they picked were popular.
Prices were going to go up anyway.
Like we said, Caitlin's data stops in 2022.
She says she's working on updating her paper with the more recent data.
All in all, across the dozen years she did study, the only period she found that these big landlords might be making housing more expensive was the most recent, the bananas period.
And I guess the question is, is that a one-off bizarro period in the real estate market?
Or is it our new normal, like today?
In this period we are in now?
Would stopping institutional investors from buying up properties make housing more affordable or less affordable?
Which brings us to the executive order that Trump signed last week.
The order is interesting in what it does not do.
It does not ban big institutional investors from buying homes, though Trump has called on Congress to pass a law that would do that.
But it does do a few things that aim to discourage the practice.
When people buy homes, the federal government often insures or guarantees or securitizes their mortgage.
And the order directs government agencies to not do that for big investors.
Caitlin says she's skeptical that will change much because these big Wall Street firms they don't need the government to back them.
They have other ways of funding their purchases that already give them a leg up.
I don't think they're using mortgages nearly as often as you or I would, or as often as small mom and pops.
In fact, in the period she studied, large institutional investors bought in cash 83 percent of the time.
By and large, they are not dependent on mortgage financing.
They get money to buy homes from investors.
The most interesting thing in the order might be the part that directs the FTC and DOJ to investigate any big home purchases on antitrust grounds.
As in, see if their pricing or vacancy policies amount to illegal anti-competitive practices.
And Caitlin thinks that could have a chilling effect.
It could keep big investors from buying.
So all in all, do you think these policies are going to move the needle on housing affordability?
Big pause.
Sigh.
It's just I just they're not a big enough share of the market to really move the needle for most Americans.
They may move the needle if these companies take this executive order really seriously, especially like we talked about the FTC request.
There might be some neighborhoods in Charlotte, Atlanta, Phoenix that do see some price relief.
Some relief for some people, maybe.
There you have it.
Yeah, not that conclusive.
Though I do think we have learned something important here, which is that how Wall Street investors play into the cost of housing depends on the context where we are in time, where we are in the country and who investors are buying from and who they're renting to.
Coming up after the break.
There is another thing the Trump administration is doing to try to make housing more affordable, which has to do with a complex financial instrument.
That also was the inspiration for the Planet Money podcast.
Yes, I go to bed every night thanking this complex financial instrument for my job.
Is that weird?
Yeah.
When it comes to the Trump administration's proposals for making housing more affordable, the biggest thing to officially come out is that executive order limiting big institutional investors.
Yeah, I'm going to be honest.
We were expecting more on housing affordability during Trump's big speech in Davos last week.
It was billed by the White House as the rollout of his housing affordability plan.
But it ended up being not very focused on that.
When I told them about Iceland, they loved me.
They called me daddy, right, last time.
But he did bring up a concrete new program.
I've instructed government-backed institutions to purchase up to 200 billion in mortgage bonds to bring down interest rates.
This is about mortgage rates.
Mortgage rates are so important for housing affordability because they define how much you pay every month on your loan.
And Trump is trying various ways to get rates down, including serious attacks on the Federal Reserve and its independence.
But what he was talking about in Davos was his most direct intervention into the mortgage market so far.
He's attempting to move the market for mortgage-backed securities.
To help explain what those are and what he hopes to do, we called up this person.
Who are you and what do you do?
Okay, I am Susan Wachter and I am a professor of real estate and finance at the Wharton School of the University of Pennsylvania.
I love it how you introduce yourself.
She sounds like the ring announcer at a boxing match.
Let's get ready to explain mortgage-backed securities!
I can't follow that, so I think you should keep going.
All right.
Susan is a big deal in the mortgage world.
And we wanted to know how is Trump's plan going to help people like Gilmore Girls loving potential homebuyer James in Djibouti?
And Susan was like.
Well, in case you can't quite recall what mortgage backed securities are, here's how it goes.
James is going to go to a bank. and say, I want a mortgage.
The bank will then sell that mortgage as part of a pool of thousands of James' mortgages.
And that will get funded by investors who will bring money to the game.
They are the ones who are ultimately lending to James.
Those pools of mortgages are the mortgage-backed securities.
And if more investors want to buy those mortgage-backed securities, the interest rate on mortgages goes down.
Which means when the Trump administration directs its quasi-governmental mortgage companies, Fannie and Freddie, to buy up a bunch of mortgage-backed securities.
Effectively, this is going to what?
Lower to some extent. the mortgage rate that James pays for going forward.
This is huge.
Yeah.
Well, it's huge, except it's not huge.
It's not a huge decrease in rates.
It's a small decrease in rates.
We already saw an impact.
Yeah, this one is already working.
In fact, even just announcing this, Susan says, pushed rates down 0.2 percentage points.
The markets adjusted immediately.
She calls this the announcement effect.
Apparently, investors heard the Trump administration's plans and acted accordingly.
So weird that they can just that that they could just manifest this without doing anything.
It's like when I try to tickle my toddler and I'm just like I'm not even tickling them, but I'm I'm moving my fingers.
It already makes them laugh.
It's already makes them laugh.
Only they're not laughing.
They're secretly crying inside?
Yeah.
Yeah, she says new investors might be crying because rates are going down.
But for people like James, it's great.
Every little bit counts.
The problem, she says, is that there are just a lot of other things that affect mortgage rates, like geopolitical events.
You keep saying geopolitical events.
What do you mean there?
I mean Greenland, right?
That spikes mortgage rates right there.
She says mortgage rates went down a little after the White House announced Fannie and Freddie's plans and then went right back up a week after when Trump threatened tariffs on Europe over Greenland.
So, short-lived relief.
Interest rates are fickle.
Susan says she's into the Trump administration plan, in theory.
Pushing rates down is a good thing, but... There is a downside.
Yeah, what's the downside?
The downside is that Fannie and Freddie and they're now owned by the government, so us, the taxpayers, are taking on an additional interest rate risk.
Yeah.
When the government directs them to buy up mortgage-backed securities, those become effectively the problem of US taxpayers.
Susan says if this became a pattern and then something went wrong and the value of those mortgage-backed securities dropped, we might end up having to bail out Fannie and Freddie.
Sound familiar?
Yeah, sounds like we've been here before.
Deja vu.
But the other thing we should discuss here is that these two policies the only two the Trump administration has rolled out so far both of them ignore the one thing most housing economists have been shouting from the rooftops the root cause of the affordability crisis.
Both of these are demand side.
We need to solve the supply side part of this equation.
Did you watch Trump's Davos speech?
I did.
Did you see the part where he said basically a lot of Americans' wealth is in their houses and I don't want to crash the housing market.
I don't actually want to bring down prices.
That's absolutely correct.
And...
Recognizing that's important.
So what we don't want.
We don't want to tank the housing market, bringing down the wealth of folks who are counting on their home for retirement or maybe to fund their children's education.
She says the best thing would be to keep prices relatively steady and build a lot of starter homes.
Yeah, there's this weird tension here.
Actually, one of the most clarifying things I've ever heard about the housing crisis was during a conversation with Caitlin, the UT Austin professor.
She said we as Americans think we can have it all, that we can have lots of affordable housing when we're young and lots of housing wealth when we're old.
And those two things, those are in tension.
Because if we want homes to be cheap, we need a lot of them.
And if we want them to be stores of wealth, we don't.
We want scarcity.
Which absolutely stinks for first-time homebuyers like James.
Yes.
James is still in Djibouti, saving up.
We are in a hardship zone, but this is good living.
I have my own room.
I have air conditioning.
I have Wi-Fi.
I'm talking to NPR right now.
There are some very nice people that I've met out in the town, some very nice restaurants.
But he's still dreaming of the day he gets home and can buy a place of his own.
Why is it important for you to own a house?
You know, I've lived in apartments and a condo my entire adult life.
Mm-hmm.
It feels like you're not in control of your own life, when someone else is dictating how you live, where you live.
Sure.
And I would love to build a catio for the cats.
I would love to take the cats outside.
I would love to have a garage where I can do more crafts and, I don't know, do some woodworking.
I'm a man in my 40s.
Like, I got to start woodworking soon.
Isn't that a requirement?
Yes.
Some people love apartments and some people love the city and they love the excitement and they love the noise.
But I love New Hampshire and I love space and I love greenery and I like quiet, which is weird that I signed up to be in Djibouti for a year because it's opposite, all of those things.
As a reminder, you can see Planet Money in person on our book tour in April.
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Details are at planetmoneybook.com.
This episode was produced by Willa Rubin, with production help from Sam Yellow Horse Kessler, and it was edited by Marianne McCune.
It was fact-checked by Sierra Juarez and engineered by Sina Lafredo and Jimmy Keeley.
Alex Goldmark is our executive producer.
I'm Erika Barris.
And I'm Nick Fountain.
This is NPR.
Thank you for listening.
