Recent statistics indicate that in 2014, 42% of Americans live in middle class neighborhoods down from 65% in 1970! This is another sign that the middle class people and their young adult children, who normally would gravitate to these neighborhoods simply can’t afford to own homes in these neighborhoods which they normally would have sought out because of the good schools and services available there. It is also indicative that there has been a long-standing bias about building rental units in these middle class neighborhoods by home owners who felt that this would downgrade their neighborhoods and bring in rental residents who are “not like us”.
Of course, this has changed since the Great Recession of 2008 when many homes in these areas went into foreclosure and were purchased in bulk for cash by REITS and Hedge Funds directly from the banks at numbers far below their current market value. Their business model was to minimally repair these foreclosed homes and turn them into rental units until the real estate market had recovered and then sell them at a greatly appreciated value.
There are pros and cons to their business model. The advantage for the community is that the flood of foreclosed homes in some neighborhoods were taken off the market which preserved the image of the neighborhood and reduced the number of FOR SALE signs. The disadvantage is that individual purchasers seeking homes were prevented from accessing these properties which they previously couldn’t afford, at good value. The current situation is that these bulk purchases of homes are now being packaged and traded from one investment group to another, with the individual buyer excluded for the most part, and substantial profits being reaped for these funds.
Read more about this on the New York Times Dealbook by Matthew Goldstein.