Investment companies pick key houses, not all of them.

The average U.S. home price has risen 28 percent over the past two years as demand pushed out by a pandemic and a long-term demographic shift send buyers into a housing battle.

Might the fact that corporate investors bought 15 percent of homes for sale in the first quarter of this year have something to do with it? The Wall Street Journal reported in April that an investment firm won a bidding war to buy an entire neighborhood of single-family homes in Conroe, Texas - part of a cycle of stories fanning panic about Wall Street's gradually growing share of residential real estate.

There followed a backlash when sober analysts assured us that big investors like BlackRock remain minor players in the real estate market compared to ordinary American families. The truth lies between these two extremes: we can panic and recognize that Wall Street's role remains insignificant at the same time. While the number of homes being purchased by mega-investors is currently not enough to move the market in most parts of the country, their fundamental structural advantage is deep and growing.

Let's focus on Invitation Homes, a $21 billion listed company that was spun off from Blackstone, the largest private equity firm in the world, in 2017. Invitation Homes operates in 16 cities, with the largest number of homes in Atlanta, where it owns 12,556 homes. (While that's not a lot compared to the 80,000 homes sold each year in Atlanta, in the early 2010s Invitation Homes bought 90 percent of the homes sold in some Atlanta zip codes.)

While ordinary people typically pay a mortgage interest rate of 2 to 4 percent, Invitation Homes can borrow money much more cheaply: it gets billion-dollar loans at an interest rate of about 1.4 percent. In practice, this means that Invitation Homes can afford to add between $5,000 and $20,000 to the purchase price of each home, while still getting the home at the same actual cost as a typical homeowner. While Invitation Homes uses a mix of debt and cash from tenants to buy homes, its offerings are almost always cash only, which is a big advantage in a competitive market.

One way to evaluate Invitation Homes' business strategy is to look at the value of the properties the firm buys relative to rents. According to a recent SEC disclosure, Invitation Homes' portfolio is worth a total of $16 billion (after renovations) and the company collects approximately $1.9 billion a year in rent. That means it only takes about eight years of rental payments to pay off a typical home that Invitation Homes has purchased. The usual rule of thumb for estimating a fair sale price is a price-to-rent ratio of about 20 to 1. When this ratio is very high, it makes more sense for consumers to rent rather than buy, and when it is low, it makes more sense to buy rather than rent. The fact that Invitation Homes gets twice as good a deal as the typical homebuyer shows that it's not just buying any home: it's buying specific homes with the greatest potential for capital accumulation for the middle class.

It is not accurate that investors are "buying every single-family home they can find," as some have claimed. If that were true, their share of the US market wouldn't be small enough. They do buy inventories of relatively inexpensive single-family homes built since the 1970s in growing urban areas. They largely ignore the larger, more expensive homes, especially those that are ready to move in: the nation's wealthy boomers and financial and tech gurus are buying these properties.

More importantly, they are able to scientifically and systematically review these markets and make the most attractive cash offers on real estate values. While regular people buy homes when they really need to move somewhere (experienced) investors buy homes years before a lot of people want to move to the region. Whether it's overseeing the construction of new offices for major employers or analyzing public school enrollment data, staying ahead of the market gives large firms a significant advantage.

If you thought turning homes into rentals would lead to an overcrowded market and lower rental values, be under no illusions: as Invitation Homes tells its investors, "we operate in markets with strong demand drivers, high barriers to entry and high potential for rental growth." While renting may make sense for some people, especially those who move frequently, it is often an inconvenience, especially in the United States where we don't have particularly strong tenant protections. The business strategy of the largest landlords in the country, Invitation Homes and American Homes 4 Rent, doesn't seem to be one to make renting with us such a joy that if my tenants have to move to another city, they will specifically look for another unit owned by our company. Based on reports from Reuters, the New York Times, and the Atlantic, it is more focused on "milking" all the money from renters, avoiding making repairs, accumulating black mold and raw sewage, and assuming that moving is a huge expensive hassle.

Our current system of encouraging ownership is not perfect and carries many unnecessary risks for the 'balance' of the middle class, but financially it has paid for itself for most people who have had the good fortune to own their own home. The unconditional and explicit benefits the government provided to Americans buying their first home were the largest benefit ever received by the American middle class (a benefit long denied to black Americans for much of the 20th century, one explanation for the current size of the racial wealth gap).

Lori Goodman, vice president of housing and financial policy at the Urban Institute, points out that lawmakers could take steps to equalize the playing field between investors and the rest of us. She told me that buyers who need to borrow money using Federal Housing Administration loans or those who need a renovation loan find it especially difficult to compete with Wall Street firms. FHA official paperwork is often delayed, slowing down the buying process, so real estate sellers are often reluctant to sell to buyers using FHA loans, even if their offers are competitive. It's a problem that can be solved.

I loans for properties in need of repair, Goodman said, tend to be inconvenient and expensive. Rethinking procedures for FHA and renovation loans could "put people on a more equal footing," she said.

If you don't want all of America's land and housing to end up in the hands of 1 percent of the population, there's one very simple solution: tax the rich. After all, the companies that buy houses are ultimately owned by people (or, in some cases, universities and churches, which submit their own list of tax-exempt wealthy individuals). At the same time, when the working class goes hungry, rich people do extremely well and run out of easy places to put their money, so they buy 2000-square-foot homes in the Phoenix suburbs through their ownership stakes in these funds. It's all part of a long-term trend: as inequality increases in the U.S., the financial elite invest less and less in things that can create jobs, like research and development or new factories, and more and more in directly extracting wealth from the working class.

One way to do this? Become their landlords. Real Estate Residential real estate