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Overall I think capitalism [meaning free markets] is intrinsic to the human species. Capitalism is not something we invented. Capitalism is not even something we discovered. It is in us in every exchange that we have.

In a verbal interaction; when you and I exchange information, I want some information back from you. I give you information. You give me information. If we weren’t having a good information exchange, you’d go talk to somebody else. So, the notion of exchange, and keeping track of credits and debits, this is built into us as flexible social animals.

We are the only animals in the animal kingdom that cooperate across genetic boundaries. Most animals don’t even cooperate. But when they do, they cooperate only in packs where they co-evolve together, and they share blood, so they have some shared interests.

Humans don’t have that. I can cooperate with you guys. One of you is a Serbian. The other one is a French man by origin. And I’ve never been to either of those places ever. We have very little blood in common, basically none. But we still cooperate.

What lets us cooperate? It’s because we can keep track of debits and credits. Who put in how much work? Who contributed how much? That’s all free market capitalism is.

So, I strongly believe that it is innate to the human species, and we are going to create more and more wealth, and abundance for everybody.

Everybody can be wealthy. Everybody can be retired. Everybody can be successful. It is merely a question of education and desire. You have to want it. If you don’t want it, that’s fine. Then you opt out of the game.

So with that said, I don’t hate capitalism at all but I can recognize sometimes it can go south…particularly in the case of monopolies. That’s what leads us to Blackstone (no not the grill company)

Stephen Schwarzman's firm, Blackstone owns 274,859 homes worth over $55 billion.

How They Built the Monopoly

After 2008, Blackstone created Invitation Homes and bought 50,000 foreclosed properties while families lost their homes. Pure opportunism—>nothing wrong with that in a free market.

The next move came in 2017: they took Invitation Homes public and sold their shares for $7 billion by 2019. Wall Street loved the story of "institutionalizing" single-family rentals.

Then Blackstone realized they'd sold the golden goose. Housing got scarcer, not more abundant. Construction never recovered to pre-crisis levels. So they went bigger: $6 billion for Home Partners of America, $3.5 billion for Tricon Residential, $10 billion for AIR Communities, $12.8 billion for American Campus Communities.

They're now America's third-largest single-family rental owner. But size isn't the issue—concentration is.

Geographic Market Control

Blackstone doesn't buy randomly. They target specific metros:

• Atlanta: 11,144 homes

• Dallas: 5,172 homes

• Charlotte: 4,710 homes

• Tampa: 3,949 homes

• Phoenix: 3,801 homes

In Atlanta, institutional investors own 25% of single-family rentals. Jacksonville: 21%. Charlotte: 18%.

That's not market participation—that's market control. When you own a quarter of anything in a local market, you set prices.

The Competition Problem

Here's where free market theory breaks down: Blackstone shows up to home sales with unlimited cash, no inspections, same-day closes. Regular families need mortgages, want inspections, need 30 days to close.

It's not competition when one player has infinite resources and the other is constrained by human limitations.

Institutional investors bought 18% of all homes sold in Q4 2023, rising to 26% of the cheapest homes. They're not competing with families, they're pricing them out systematically.

Pricing Power in Action

Free markets require price discovery through competition. But when Blackstone owns enough local supply, they discover prices by setting them.

San Diego example: 38% rent increases since 2021 versus 20% citywide. That extra 18% isn't market forces—it's monopoly pricing.

They've also mastered fee extraction: online payment fees, late fees, lease termination fees adding $1,700 annually per tenant. Classic monopolist behavior—charge what the market can bear because customers have nowhere else to go.

Market Structure Changes

Before 2011, no investor owned 1,000+ single-family homes. The market was fragmented—classic competitive structure.

Today, mega-investors control 450,000 properties. Projections show 40% institutional ownership of single-family rentals by 2030.

That's a fundamental shift from competitive markets to oligopoly. Basic economics says that leads to higher prices and reduced innovation.

Political Response

Markets self-correct through competition or regulation. Since competition failed, regulation is stepping in.

The UN, Congress, FTC, and multiple states are targeting institutional housing ownership. California banned large investor purchases. Minnesota is blocking ownership-to-rental conversions.

This isn't anti-capitalism—it's anti-monopoly. Same reason we broke up AT&T and Standard Oil.

The Capital Advantage

Blackstone has $200 billion in undeployed capital. Even with regulatory restrictions, they can outlast, outbid, and outmaneuver any competition.

Paradoxically, regulations might help them. If new rules block competitors from buying, their existing portfolio becomes more valuable.

That's the monopolist's dream: regulatory barriers that cement their market position.

Free Market Failure

Blackstone identified that America stopped building enough homes after 2008, then positioned to profit from artificial scarcity. Smart business.

But when one player controls enough supply of an essential good, you no longer have a free market. You have extraction.

Stephen Schwarzman's net worth: $37 billion. Average family in his rental properties: $121,700 total wealth.

That's not capitalism rewarding value creation. That's monopoly capitalism rewarding market control.

The American Dream was supposed to be about building wealth through ownership. Now one firm owns the dream and rents it back to you.

At whatever price they want.

Stay curious 🙂 

- John

Disclosure: This analysis reflects Pivot and Flow’s views and isn’t personalized advice. All investments carry risk, including complete loss of principal.

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