Welcome to The Corner. In this issue, we discuss how Big Finance is driving rents higher, the details of a class-action claim filed against Facebook in the U.K., and our three-day event next week on how anti-monopoly enforcement will make America stronger and more prosperous.

Big Finance Is Fueling The Increase in Housing Rents

Garphil Julien

Last week, the Federal Reserve Bank of New York forecast a 10 percent increase in rents over 2022, the highest since the Bank has kept records. Rent is up in every one of the nation’s top 100 metropolitan areas, forcing tens of millions of Americans to shell out more income at a time when the prices of consumer goods are spiking. As The New York Times notes, this poses a major test to President Joe Biden’s agenda and Democrats’ chances in the 2022 midterms.

Many attribute the price rise to too few rental units. And to some extent this is true, as construction of new units declined sharply after the crash of 2008. But this problem is already ending, as construction of single and multifamily units is now at its highest level in over a decade.

The main reason for the spike? Price gouging by financial groups that in recent years have poured hundreds of billions of dollars into rental properties.

The idea that monopolists are helping drive rents higher can seem counterintuitive. In the U.S. there are nearly more than 48 million individual rental units available, as well as tens of millions of single family homes. But new research shows a strong link between the buying up of homes by private equity (PE) and rising rent prices. Other research shows the effect of such rollups is far bigger in metropolitan areas than elsewhere and that large-scale urban landlords tend to act in a “quasi-monopolistic” fashion to increase prices.

“There are reasons to be worried that the more concentration you have among these types of owners, that will further exacerbate rent costs,” says Dr. Benjamin Teresa, a professor at Virginia Commonwealth University and real estate finance expert.

Between 2011 and 2018, PE funds bought over a quarter-million single family homes across the country. Blackstone alone now accounts for one of every 200 rental houses in the U.S. But that tells only half the story. These investors often target specific markets in attempts to monopolize local real estate supply. In Atlanta, Columbus, Charlotte, and Phoenix, institutional investors own roughly one in five single family homes. And their share of starter homes is often higher. In 2018 such investors bought up 20 percent of available starter homes in the entire U.S. market.

The big real estate rollup doesn’t stop with single-family home rentals. As ProPublica reports, the 35 largest apartment property owners — all backed by private equity — hold roughly one million apartments. Increasingly this includes affordable housing units. Blackstone last year struck a deal to acquire $5.1 billion in rent-controlled apartments in major cities. And the situation will likely get only worse. In 2020, PE firms reported $389 billion of unallocated capital for real estate purchases.

Large asset management firms and institutional investors are also scouring the market, with Brookfield Asset Management and PIMCO raising billions to buy homes. Pension firms and fintech firms aimed at individual investors are also snapping up housing across the country. Even Koch Industries — which makes most of its profits from refining and transporting oil and gas — has been investing in single-family rental housing.

The problem has grown rapidly worse of late, but the source of the crisis can be explained by neoliberal public policy decisions made decades ago.

The Tax Reform Act of 1986 and the Omnibus Budget Reconciliation Act of 1993 removed traditional restrictions on ownership and investment structures of real estate investment trusts (REITs) and allowed them to expand from commercial to residential properties. The changes also allowed pension funds, private equity, and other institutional investors to own REITs and to trade shares in public markets. Additionally, in the mid-1990s, states across the country began to allow limited liability companies to own real estate, which further cleared the way for investment platforms to use corporate vehicles to invest in real estate.

Federal government-backed entities like Fannie Mae and Freddie Mac and the Federal Housing Administration are also culprits. In 2014, they began selling delinquent mortgages to PE firms and other investors. The federal government also offers large tax breaks for rich real estate investors.

The Biden administration has taken some steps both to increase the supply of affordable housing and to limit the involvement of large financial institutions in these markets. But Sen. Elizabeth Warren (D-Mass.) and others have begun to call for a much more fundamental rethink of housing policy. As professor Teresa puts it, “It’s not only that we need more housing, but we also need to think about who’s going to own it, what are the conditions going to be like under which it’s managed and operated for tenants, and what are the protections.”

Klobuchar, Clark, Kanter, and Wu to Headline Open Markets’ Discussion Series on “Busting the Big Myths on Anti-Monopoly Reform”

The conference will take place at lunchtime on Tuesday, Feb. 15, Wednesday, Feb. 16, and Thursday, Feb. 17. Other participants include Financial Times columnist Rana Foroohar, security technologist Bruce Schneier, and The Markup editor-in-chief Julia Angwin, the entrepreneur and technologist Dina Srinavasan, and Open Markets Institute executive director Barry Lynn.

Learn more and register here.

Q&A: Behind the Scenes of the U.K. Class-Action Suit Against Facebook

Karina Montoya

British legal researcher Liza Lovdahl Gormsen has been making global headlines since she launched a first-of-a-kind class -action suit against Facebook in the U.K. worth at least $3.2 billion. In the suit, Lovdahl Gormsen argues that Facebook abused its market dominance to exploit users' personal data for more than three years.

For its series Clearly Speaking, Open Markets spoke to Lovdahl Gormsen, co-director of the Competition Law Forum and a member of Open Markets’ academic advisory board, where she offers insights relevant to policymakers, scholars and journalists examining the case and its consequences.

Read our full interview here, including Lovdahl Gormsen’s hope that other nations might apply this approach in similar suits and extend compensation to their citizens.

View the full article here.

🔊 ANTI-MONOPOLY RISING:

On Thursday, the Department of Justice filed an amicus brief in a case involving the National Labor Relations Board (NLRB) and the Atlanta Opera. The case addresses the definition of an “employee” under federal labor law. The DOJ’s pro-worker brief calls on the NLRB to broaden the definition of employment for workers so they can organize under the National Labor Relations Act and quotes comments from OMI legal director Sandeep Vaheesan. (NLRB)

Last week, European Union data protection enforcers ruled that consent pop-ups run by IAB Europe, a digital ad trade body, are illegal. The pop-ups ask users for consent to be tracked for advertising purposes. The tracking happens through its Transparency and Consent Framework (TCF) system. Enforcers argued that the TCF has “systematic deficiencies” and makes consent unclear, which irritates users. Enforcers also argued that it fails to keep personal data secure, provide transparency, respect requirements for “data protection by design, and ensure data processing compliance with GDPR. (ICCL, PCGamer)

Late last month, Amazon announced it would shut down its “Sold by Amazon” program nationwide after Washington state’s Attorney General Bob Ferguson accused the program of violating antitrust laws and being anti-competitive. According to third-party sellers, the program allowed Amazon to control the sellers’ pricing by matching an algorithm to different sellers. (Seattle Times)

Earlier this week, PriceRunner, a European price comparison service, launched a lawsuit against Google accusing the corporation of violating a 2017 European Commission enforcement order. Google was ordered by the European Commission at the time to stop preferencing its own shopping comparison services over rivals. PriceRunner alleges that Google is still reducing search results from rivals and that its shopping service has higher prices for products. Citing this reason, PriceRunner is seeking at least $2.4 billion in damages. (TechCrunch)

The European Union announced Tuesday the European Chips Act, a 43 billion euro plan to bolster the continent’s chipmaking ability. The act would fund efforts to attract large chipmaking giants to set up new manufacturing locations in an effort to achieve a 20 percent global market share in chip production by 2030. The plan also includes investment for leading research and innovation institutes. (Politico)

📝 WHAT WE'VE BEEN UP TO:

Brian Callaci and Sandeep Vaheesan co-wrote an article in Harvard Business Review about the Robinson-Patman Act. “Just as they once reined in the A&P, members of Congress and federal antitrust regulators should look to the Robinson-Patman Act again to build a fair retail sector.”

Sandeep Vaheesan published an article in Newsweek about coercive non-compete contracts. “A comprehensive FTC ban on non-competes would allow all workers, not only those at the top, to enjoy the fruits of employer competition for their services.”

Daniel Hanley was quoted in Sen. Jon Tester’s press release announcing his Agriculture Right to Repair Act, which aims to give farmers the right to repair their own equipment and end current restrictions on the repair market. Common Dreams, Wisconsin State Farmer, The Fence Post, and The Auto Channel also covered Hanley’s quote.

Sandeep Vaheesan spoke at a debate sponsored by The American Bar Association Antitrust Law Section about competition law. “Panelists debate whether consumer welfare should be abandoned or modified to include a broader array of policy objectives, such as labor and social issues.”

Garphil Julien commented on the consolidation of the semiconductor industry in Retail Dive. "’Semiconductors were a product the U.S. used to make in a relatively large capacity,' Julien said. 'Over the past few decades, you've seen consolidation of the semiconductor industry, the stripping of capacity, the shutdown of plants across the U.S. to a point where there are only three integrated device manufacturers, three companies that actually make semiconductors.’"

Brian Callaci’s writing about the manipulation of franchising models by corporations was mentioned in The Counter. “’The whole reason that [fast-food companies] do franchising, the motivation for developing the business structure, is to get that control that they like and avoid the responsibility,’ Callaci said. ‘Making the franchisors own it helps them behave more responsibly.’”

Open Markets joined a coalition of 95 unions, civil rights, financial, and environmental groups in sending a letter to Sen. Sherrod Brown (D-Ohio), chairman of the Senate Banking Committee, voicing support for President Biden’s slate of Federal Reserve nominees. “These nominees are committed to maintaining stability in our economy in the midst of the pandemic, encouraging economic growth that benefits all working people, and fighting the impacts of inflation, all while preserving the independence of the Fed.”

Sandeep Vaheesan was quoted in The Washington Examiner for critiquing Justice Stephen Breyer’s role in allowing corporate concentration. “Stephen Breyer's fingerprints are all over our corporate power problem. Glad he finally retired,” said Sandeep Vaheesan, legal director at the Open Markets Institute, a liberal anti-monopoly think tank.

Barry Lynn’s groundbreaking reporting and warnings about supply chain issues was mentioned in The American Prospect, which published a special issue on America’s supply chain crisis. The Prospect noted that “([Lynn] offered his warning in the pages of The Prospect in 2007, but unsurprisingly that didn’t move elite economists or corporate America.)”

Open Markets’ report about Amazon’s worker surveillance was cited in The Independent and Yahoo! News. “Allegations that Amazon conducts surveillance of its workers came after a report from the Open Markets Institute, an advocacy group found a “tremendous imbalance of power between employers and workers [that] get exacerbated by an alarming increase in surveillance” in 2020.”

Open Markets’ concentration data continued to receive coverage, including in The Wall Street Journal and Competition Policy International. “At present, just four manufacturers control 84% of the hearing-aid market, according to the Open Markets Institute, a think tank critical of corporate concentration.”

Nikki Usher was mentioned in an NPR story about the news industry and disinformation. “The cost of inducing people to subscribe is to make news, information and a range of opinions available to only those who have the means to afford and receive them online,” the report noted, citing Usher’s book News for the Rich White and Blue. Nieman Lab also mentioned Usher in a similar story.

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📈 VITAL STAT:

$10 billion & $250 billion

Facebook told investors it expected to miss out on $10 billion in ad revenue in 2022 because of changes in Apple’s privacy practices. Investors then drove Facebook’s stock price down some $250 billion. (Bloomberg)

📚 WHAT WE'RE READING:

“The Political Economy of the Decline in Antitrust Enforcement in the United States” (Stigler Center, Filippo Lancieri et al.): The authors describe the decline of antitrust enforcement in the United States since the 1960s. They conclude that the decline is not the result of declining public support but the result of technocratic decisions made by regulators and judges with support from Big Business.

NIKKI USHER'S

NEW BOOK

News for the Rich, White, and Blue: How Place and Power Distort American Journalism

Nikki Usher, a senior fellow at Open Markets Institute’s Center for Journalism & Liberty, has released her third book, News for the Rich, White, and Blue: How Place and Power Distort American Journalism. In her latest work, Usher offers a frank examination of the inequalities driving not just America’s journalism crisis but also certain portions of the movement to save it.

“We need to radically rethink the core functions of journalism, leverage expertise, and consider how to take the best of what the newspaper ethos of journalism can offer to places that have lost geographically specific news, “ says Usher, an associate professor at the University of Illinois-Champaign. “The news that powers democracy can be more inclusive.”

Usher is also the author of Making News at The New York Times (2014) and Interactive Journalism: Hackers, Data, and Code (2016).

News for the Rich, White, and Blue, published by Columbia University Press, is available as a hardback, paperback and e-book. You can order your copy here.

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