In December 2022, workers in the University of California system engaged in the largest academic strike in US history. The work stoppage, which involved more than 48,000 graduate workers, was motivated in large part by the growing gap between their meager wages and the astronomical cost of living. During contract negotiations, however, the university warned the strike might backfire: UC Labor Relations Director Letitia Silas cautioned that raising graduate workers’ wages could have “unintended consequences” such as “subsidizing private landlords and further exacerbating rental costs for other Californians.” Based on this public statement, one could be forgiven for thinking UC administrators care about rent burdens faced by regular working people. They don’t. At the same time as they were attempting to shame graduate workers into accepting lower wages, they were busy devising an investment partnership with one of the largest private landlords in the US.
Barely a week after the strike ended, the UC announced a $4 billion investment in the Blackstone Real Estate Investment Trust (BREIT), managed by powerful private equity group Blackstone Inc. In the weeks since the initial investment, Blackstone tenants, campus unions, and faculty have all denounced the move. As if thumbing their nose at such actions, however, the UC poured another $500 million into it. With BREIT valued at $69 billion, the UC’s $4.5 billion investment over six-years gives it close to a 7% stake in Blackstone’s real estate strategy — a strategy that the Financial Times confirmed is increasingly committed to profiting via evictions. As we explain in the following post, in its partnership with Blackstone, the UC is directly contributing to and profiting from housing scarcity and tenant disempowerment, betraying its public mission.
A BREIT-led Housing Shortage
To understand the perverse nature of this partnership, it is worth first explaining how Real Estate Investment Trusts (REITs) work and why they are a plague upon homeowners and renters across the globe. A REIT is a company that owns income-producing real estate (such as apartments, warehouses, or malls), allowing shareholders in the company to invest in real estate without buying brick-and-mortar properties themselves. Rental income flows from properties to REIT shareholders, incentivizing rent increases to generate returns for investors.
Over the past two decades, REITs have become increasingly popular, due in part to state de-risking institutional real estate investment for pension funds and endowments seeking healthy returns. For example, in favoring the interests of investors and financial institutions over households during the subprime mortgage crisis, the US state was instrumental in creating a property pipeline for institutional landlords that became residential REITs. Today, those REITs are included in key market index funds, helping to mainstream them and draw investments from institutions like public universities.
REITs feed on distressed and devalued real estate. Blackstone, for instance, founded Invitation Homes, which first became an industry leader in the purchase of single-family homes by institutional investors after the Global Financial Crisis, and expanded its empire during the coronavirus pandemic. Feeding on mass foreclosures and mass death, corporate landlords have snapped up apartment buildings, affordable housing developments, and single family homes, buying over 13% of homes on the market with all-cash, as-is purchases that swoop up inventory out of the hands of aspiring homeowners. This strategy is explicitly predatory: As Daniela Gabor points out, by mopping up distressed housing during downturns, institutional investors like Blackstone pursue an investment strategy built on reducing the inventory of available homes, thereby enhancing their own market power. The UN has identified these practices, and Blackstone’s actions in particular, as having “devastating consequences” for tenants and helping to fuel a global housing crisis.
This institutional investing also has significant racial ramifications. Nationally, institutional purchases have been highly concentrated in areas with minority families of color already structurally disadvantaged by histories of redlining, further limiting the ability of minority families to own a home. The self-reinforcing cycle affects rental prices as well: as fewer families are able to afford homes, they remain renters as landlords push up rents, reducing not only the stock of available rental units in a given area, but also the number of homes people can buy. Partly as a result of these dynamics, home prices nationally have gone up by 40% since the beginning of the pandemic.
Responding to the UC’s $4 billion investment, Blackstone president Jonathan Gray noted that “Less [housing] supply is key.” A lack of housing supply translates into more market power for Blackstone, which, as Gray put it, “gives us a lot of confidence as we look out over the horizon.” Yet, what Blackstone and the UC see as a stable investment, tenants experience as crushing rent burden. A recent study found that 62% of US households cannot afford a comfortable standard of living after paying rent. For the majority of people in the United States, shouldering a higher rent burden entails making desperate choices between eviction and other essentials, such as paying for food, heat, and life-saving prescriptions.
Such dire conditions extend to UC students and employees. As growing reports and our own student interactions attest, the statewide housing crisis forces students into multiple jobs to pay the rent, churning students through houselessness or insecure housing that includes squeezing students into overcrowded dorms, or sleeping in vans, tents, and closets. As the Federal Reserve continues to raise interest rates, provoking fear of a recession, Blackstone and UC’s profit projections rely on exacerbating the cost of living crisis.
The Public University as Private Investor
This is not the first time the University of California has hitched its future to real estate speculation. Well before the Blackstone deal, UC was already the largest landlord in California. UC leaders profess that providing affordable student housing is one of the university system’s most urgent needs, citing housing construction costs, insufficient state funding, and restrictive environmental laws as critical reasons for their failure to provide sufficient capacity for a growing student population.
Yet housing shortages and housing unaffordability are UC-enabled crises. The UC manages nearly 150,000 beds in university housing and an additional $5 billion in direct real estate investments. And as evidenced by steep rent increases (up to 60%) in the for-profit apartment buildings it owns near its campuses, and an increasing portfolio in for-profit real estate purchases, housing is a major profit center for the UC. At a Regents meeting in 2021, Chief Investments Officer of the UC, Jagdeep Singh Bachher, noted that UC Investments is “looking for opportunities to invest in or near UC campuses,” with the eventual aim to establish “a homegrown real estate management company that methodically pursue[s] these opportunities.”
For those who believe in the public mission of the US’s premier public university system, these real estate investments are hypocritical. The Regents frequently acknowledge how serious the student housing crisis is, and recently announced an aim to reduce student housing insecurity by 50 percent by 2025. Why, then, would they also invest $4.5 billion in a private equity firm — one that sees its market power augmented by reductions in housing supply, and that actively causes housing insecurity and rent burdens?
One answer to this question lies in what Chris Newfield has called the University’s devolutionary cycle – the increasing adaptation of public universities to private sector models. Newfield argues that the increasing privatization of the university does not have a grand strategy or a unified script; rather, privatization acts as a “common sense” that “silently preselects and sorts data, identifies options that can be ignored without debate, and blocks the rethinking of core assumptions.” The retreat of state investment propels universities into private markets, which they begin to see as the solution to public problems. Under this devolutionary cycle, public institutions increasingly naturalize private investment decisions as the proper remedy to flagging budgets, rather than fight for the reconstruction of the public sector. In the process, the various functions of the university become bifurcated and operate as distinct domains, often with opposing logics and interests.
In this instance, UC Investments functions as an entity within the University of California system entirely distinct from UC Housing and Residential Services. While the latter is charged with providing, constructing, and managing housing for UC students and employees, the former has a fiduciary duty to manage and increase the UC’s portfolio of investments, currently totaling $161 billion. While Housing and Residential Services has a charge to treat housing as a use value, UC Investments treats housing purely as an investment vehicle. Given this bifurcation, and the task of UC Investments, BREIT’s role in accelerating the housing crisis is largely incidental to its function as a stable return on investment. The gradual devolution of the public university into different private sector silos therefore means that these units can operate at cross purposes to each other, one hastening the housing crisis while the other claiming to solve it.
In a public university system where 35% of UC undergraduates are Pell Grant recipients, unaffordable housing harms the mental health, academic performance, and future of low income students of color. Yet as state lawmakers push the UC to grow by 33,000 California students by 2030, the already-untenable shortage of housing and price gouging of rents will grow more dire. For 48,000 UC academic workers, the contract that emerged from their historic strike provides little reprieve from the high cost of housing. Though the contract institutes a 46% raise for graduate workers, this does little to alleviate rent burden in some of the nation’s priciest rental markets. As UCSB’s Janna Haider noted, the new contract means she will pay 41% of her income towards rent, down from 49%. But UC students and staff are unlikely to find relief soon.
BREIT’s inventory strangles housing supply – driving up rental costs for the thousands of units it holds in the Bay Area (Stockton, Sacramento, Modesto) and Southern California (Los Angeles, Corona Hills, Moreno Valley, San Diego, Riverside), as well as the nearly 10,000 beds in student housing developments at UC Berkeley, UC Irvine, and UC Riverside.
Housing as a Mass Demand
These public investments in private dispossession have proceeded apace even as housing justice advocates across the country wage campaigns for rent control and affordable housing. In response to such pressure from tenants and housing advocates, the White House recently announced new policies to ameliorate the housing crisis. While the steps do not go nearly far enough, they compel a conversation about what role the public sector should play in the political struggle between tenant power and landlord power. The University of California’s investment in Blackstone puts the country’s largest public university system squarely on the side of the landlords: Perhaps unsurprisingly, Blackstone was one of the major donors to the California Business Roundtable, which bankrolled opposition to rent control legislation that would limit unfair rent increases, protect affordable housing, and increase property taxes in California in 2018, 2020, and 2022.
The day after Bachher met with Blackstone to propose the investment, tenants from San Diego, LA, and San Francisco protested Blackstone’s rent increases, evictions, lack of repairs, and rampant harassment. Declaring “housing must be treated as a public good,” the members of Alliance of Californians for Community Empowerment denounced Blackstone’s role in the housing market. As faculty at the UC, we share their outrage at Blackstone’s choice to rent-gouge tenants simply because they have the power to do so. While we might not be surprised when a private equity behemoth like Blackstone engages in such behavior, it is unconscionable that a public university dedicated to the mission of public education would work to strengthen the hand of corporate landlords.
The UC’s response has often been that cuts to public funding leave it with few options: in order to expand the available options of UC housing for students and workers, the UC has to make up for the state’s austerity budget both by pursuing austerity programs itself and by expanding its investment portfolio. It is undeniable that across the country, states have not only cut funding to public universities, but have cut more funding from universities than from any other part of the state government. Without Blackstone, the UC is likely to claim, it cannot fund the capital projects so desperately needed to solve the student housing crisis.
We should not accept such justifications. As the largest landlord in the state, the University of California has the power and obligation to make good on its public mission. Rather than funding massive investments for private equity firms and capitulating to the imperatives of private accumulation, the UC could reaffirm its commitment to being a public university for the public interest. If history is any guide, however, the University will only do so in response to public pressure. When it has made decisions on the right side of history before, such as divesting from apartheid South Africa in 1986 and from fossil fuels in 2020, these actions have always been driven by pressure from mass student organizing. In 2023, student movements across the UC are demanding that the university solve its dire housing crisis. From lobbying the legislature to fast-track housing construction, to proposing livable alternatives to privately-funded megadorms, students have begun to imagine what public solutions to the housing crisis might look like. Our institutions will not make the right decisions unless a mass student campaign demands that housing–like education–be made a public good. The hour has come for the UC to listen to its students, and to use its massive capacity to invest and plan to help solve the housing crisis, rather than prolong it.