Matthew C Klein, Columnist

Private-Equity Landlords Won't Blow Up the Economy

While it often makes sense to be skeptical of financial innovation, securitizing rental payments is probably a good idea.

November 7, 2013 at 7:31 PM UTC

By Matthew C Klein

Matthew C. Klein writes for Bloomberg View about the economy and financial markets. He previously wrote for the Economist magazine and its economics blog, Free Exchange. Before that, Klein was a research associate at the Council on Foreign Relations, where he spent more than two years studying the history of the Federal Reserve and the intellectual history of monetary economics for an upcoming book by Sebastian Mallaby. He also worked at Bridgewater Associates, where he studied the economies of Central and Eastern Europe and advised institutional investors on asset-liability management. Klein has a bachelor's degree in history from Yale University. Originally from Chicago, he lives in New York.

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David Dayen, a thoughtful analyst of housing issues, is concerned that no good will come of the move by private-equity firm Blackstone Group to raise$479.1 million by issuing a new type of bond backed by rental payments on more than 3,000 single-family homes. Where Dayen goes wrong is assuming that these securities will help fuel another bubble and crisis, or breed "absentee slumlords." The less exciting reality is that the rental market for single-family homes will probably remain a niche business that will be profitable for some people and make little difference to the rest of us.

To see why, it helps to compare the big problems caused by the housing bubble with what Dayen is concerned may happen with the single-family rental market. Here are four bad things tied to the housing bubble, in descending order of badness: