Tackling Private Equity Firms: Negative Effects on Minority Communities

What are Private Equity Firms?

Private equity firms are financial organizations that make investments in private businesses, either undervalued or distressed, that exhibit strong growth potential. The goal is to buy, develop, or restructure them before selling them for a profit. However, through this process, private equity firms have heavily focused on acquiring property in minority communities. The dominance of private equity firms in the housing market has negatively affected minority communities, making it more difficult to afford housing, acquire wealth accumulation, and experience homeownership. 

Understanding Why Minority Communities are Targeted by Private Equity Firms

Minority communities are viewed as an easier opportunity to expand on a firm’s wealth due to the low prices for purchasing property. In New York, the smaller housing buildings, often under the ownership of families or local investors, are gaining appeal among larger purchasers. As Zaveri and Parnell (2023) discuss, that is due to their distinctive characteristics such as rent that is usually unregulated and property taxes are frequently controlled, which lowers an owner’s expenses. The smaller buildings offer the potential for higher returns and lower operating costs compared to larger, more regulated properties.

Effects of Private Equity Firms Taking Over in These Communities:

  • Drastic rent increase: A one-bedroom apartment in 2023 was $4,295, marking a 7.4% increase compared to 2022. A two-bedroom apartment in 2023 had a median rent of $5,200, reflecting a 4% rise from 2022 (Bahney, 2023)
  • The living conditions of tenants worsen: no hot water, molding, risk in safety, etc. (Vogell, 2023)
  • Minorities have more of a difficult time accumulating wealth through homeownership: 2015 to 2019, the percentage of homeownership for black families was 41.7% while the percentage for white families was 71.7% (Georgia Institute of Technology, 2023)

What Needs to be Done?

Comprehensive programs that protect individuals of minority communities need to be implemented, especially in New York. However, Human Rights Watch (2023), presents the idea that the government chooses to create and promote programs such as the, Permanent Affordability Commitment Together (PACT), where NYCHA has decided to outsource the management of some of its housing complexes to private entities and leased these properties to private developers. The arrangement provides these developers with a direct stake in the income generated by public housing.

There needs to be proper allocation of funds that ensure long-sustaining, high-quality, affordable housing so that there isn’t any capability of these firms to take over management of housing buildings that many rely on. Government officials are entrusted with the responsibility of earnestly advocating for the rights of individuals, recognizing their limited platform to address their concerns about their housing conditions, yet there is no urgency to fix this issue for minorities.

Conclusion

Private equity firms have a large influence on the housing market, which can cause a lot of detrimental consequences. At first, they might seem helpful because they bring in money and help things run more smoothly but since they’re mainly focused on making profit and expanding wealth, these firms often end up hurting minorities and their neighborhoods. It’s imperative for government officials and people involved in housing to carefully assess and control what private equity firms are doing in the housing market. It will ensure that minorities have access to affordable housing, instead of it just being something companies use to increase its wealth and create an even larger gap between the wealthier and economically disadvantaged individuals.

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