In December 2022, workers in the University of California system engaged in the largest academic strike in US history. The work stoppage, which involved more than 48,000 graduate workers, was motivated in large part by the growing gap between their meager wages and the astronomical cost of living. During contract negotiations, however, the university warned the strike might backfire: UC Labor Relations Director Letitia Silas cautioned that raising graduate workers’ wages could have “unintended consequences” such as “subsidizing private landlords and further exacerbating rental costs for other Californians.” Based on this public statement, one could be forgiven for thinking UC administrators care about rent burdens faced by regular working people. They don’t. At the same time as they were attempting to shame graduate workers into accepting lower wages, they were busy devising an investment partnership with one of the largest private landlords in the US.
Barely a week after the strike ended, the UC announced a $4 billion investment in the Blackstone Real Estate Investment Trust (BREIT), managed by powerful private equity group Blackstone Inc. In the weeks since the initial investment, Blackstone tenants, campus unions, and faculty have all denounced the move. As if thumbing their nose at such actions, however, the UC poured another $500 million into it. With BREIT valued at $69 billion, the UC’s $4.5 billion investment over six-years gives it close to a 7% stake in Blackstone’s real estate strategy — a strategy that the Financial Times confirmed is increasingly committed to profiting via evictions. As we explain in the following post, in its partnership with Blackstone, the UC is directly contributing to and profiting from housing scarcity and tenant disempowerment, betraying its public mission.
To understand the perverse nature of this partnership, it is worth first explaining how Real Estate Investment Trusts (REITs) work and why they are a plague upon homeowners and renters across the globe. A REIT is a company that owns income-producing real estate (such as apartments, warehouses, or malls), allowing shareholders in the company to invest in real estate without buying brick-and-mortar properties themselves. Rental income flows from properties to REIT shareholders, incentivizing rent increases to generate returns for investors.
Over the past two decades, REITs have become increasingly popular, due in part to state de-risking institutional real estate investment for pension funds and endowments seeking healthy returns. For example, in favoring the interests of investors and financial institutions over households during the subprime mortgage crisis, the US state was instrumental in creating a property pipeline for institutional landlords that became residential REITs. Today, those REITs are included in key market index funds, helping to mainstream them and draw investments from institutions like public universities.
REITs feed on distressed and devalued real estate. Blackstone, for instance, founded Invitation Homes, which first became an industry leader in the purchase of single-family homes by institutional investors after the Global Financial Crisis, and expanded its empire during the coronavirus pandemic. Feeding on mass foreclosures and mass death, corporate landlords have snapped up apartment buildings, affordable housing developments, and single family homes, buying over 13% of homes on the market with all-cash, as-is purchases that swoop up inventory out of the hands of aspiring homeowners. This strategy is explicitly predatory: As Daniela Gabor points out, by mopping up distressed housing during downturns, institutional investors like Blackstone pursue an investment strategy built on reducing the inventory of available homes, thereby enhancing their own market power. The UN has identified these practices, and Blackstone’s actions in particular, as having “devastating consequences” for tenants and helping to fuel a global housing crisis.
This institutional investing also has significant racial ramifications. Nationally, institutional purchases have been highly concentrated in areas with minority families of color already structurally disadvantaged by histories of redlining, further limiting the ability of minority families to own a home. The self-reinforcing cycle affects rental prices as well: as fewer families are able to afford homes, they remain renters as landlords push up rents, reducing not only the stock of available rental units in a given area, but also the number of homes people can buy. Partly as a result of these dynamics, home prices nationally have gone up by 40% since the beginning of the pandemic.