Are Meta And Google America’s Next Big Landlords?

Authored by Sam Bourgi via CreditNews.com,

After conquering the digital realm, America’s Big Tech is plotting colossal real estate projects that could house thousands of people and retail stores in the physical world.

Google-parent Alphabet Inc. is in the process of building a massive 153-acre neighborhood near its Mountain View, California, headquarters.

The complex will feature more than 7,000 homes and roughly 300,000 square feet of retail and community spaces.

Meanwhile, Facebook owner Meta was recently approved for a 59-acre housing project dubbed “Zucktown.” It will feature 1,700 residential units, a hotel, offices, and retail space not far from Meta’s headquarters.

Amazon is taking a slightly different approach after selecting Arlington, Virginia, as the site of its new second headquarters, where 250,000 workers will congregate.

Rather than build homes directly, the e-commerce giant has set up a $2 billion Amazon Housing Equity Fund, which will support housing development in the surrounding regions, as well as other states.

Then there’s billionaire entrepreneur Elon Musk, who has reportedly acquired thousands of acres near Austin, Texas, to house employees of Tesla, SpaceX, and Boring Co.

Although the size, scope, and purpose of these projects vary, it seems like America’s tech giants are branching out into real estate—for better or worse.

Corporate towns: Much needed housing supply or dystopian nightmare?

One of the underlying reasons behind America’s housing affordability crisis is a severe housing shortage.

In 2022, America’s housing inventory hit the lowest on record. It has somewhat recovered since but remains well below a level that would fulfill the current demand, according to the National Association of Realtors (NAR).

According to real estate developer Hines, the U.S. is currently short of about 3.2 million homes.

The end result is home prices aren’t giving out even with home sales at multi-year lows. The shortage has also spilled over into the rental market, with average rents soaring to around $2,000 a month last year.

While more housing is needed, it’s not clear whether a corporate initiative to plug that supply gap is the answer.

Critics say corporate towns may cripple employee flexibility and make it harder for them to change jobs or locations. And while these homes may not be limited to current employees (in the case of Meta and Google, for example), they’re less likely to appeal to people who don’t work for the company.

Americans have long been weary of bankers and Wall Street firms buying up real estate. While those fears have been overblown, the idea of handing over rent payments—directly or indirectly—to Big Tech firms would likely be met with similar suspicion.

The other costs of having corporate landlords

Research from the Atlanta Fed found that corporate landlords are far more likely to evict tenants or, at least, use the threat of eviction. The trend holds true even when controlling for neighborhood variables such as education, employment, and racial composition.

“Some of the largest firms file eviction notices on a third of their properties in a year and have an 18 percent higher housing instability rate even after controlling for property and neighborhood characteristics,” the researchers wrote.

According to a 2022 report by researchers at UC Berkeley, corporate landlords charge higher fees—a trend that has accelerated since Covid.

“Myriad fees work to squeeze more revenue from their portfolio, even when the firm is not substantially increasing its portfolio size,” report authors Desiree Fields and Manon Vergerio wrote.

“Such fees include tenant utility reimbursements, late fees, move-out fees, pet fees, pest control services, landscaping services, smart home appliances, and other “miscellaneous fees,” they said.

Corporate landlords may bring financial stability and scalability to the rental market, but it may come at a huge cost.