Hoover visiting fellow Matthew E. Kahn is a Provost Professor of Economics and Spatial Sciences at the University of Southern California and the author of seven books, including Climatapolis: How Our Cities Will Thrive in the Hotter Future (Basic Books, 2010) and Adapting to Climate Change: Markets and the Management of an Uncertain Future (Yale University Press, 2021).
California Governor Gavin Newsom didn’t mince words when he labeled private equity firms swooping into fire-ravaged Los Angeles neighborhoods as “vultures.” These investors, he argued, were preying on distressed sellers and buying up empty lots at a clip that threatened to erode community fabric and transfer wealth away from local families.
A Redfin report marking the first anniversary of the fires reveals that investors—often identified by corporate monikers like LLC or Inc.—snapped up about 40 percent of vacant lots sold in key ZIP codes: 40.3 percent in Pacific Palisades (48 out of 119), 44.3 percent in Altadena (27 out of 61), and 44.2 percent in Malibu (19 out of 43). This marks a stark increase from pre-fire levels. The concern is that corporate ownership will prioritize profits over preserving neighborhood character.
Newsom’s response was swift and regulatory. In October, he signed Assembly Bill 851, banning unsolicited offers on burn-zone properties until 2027 in an effort to curb predatory tactics. A key question is how many families would like to rebuild but can’t afford to, versus those who would like to sell and relocate. Banning investors will not help those families who would like to rebuild and will harm those families that would like to sell. But given the political response, the current approach of private equity buying all of a damaged or destroyed residence is also not working for investors.
Yet there’s an opportunity to assist those families who want to rebuild while still allowing private equity to help finance the revival of these neighborhoods. The necessary change involves channeling investor capital toward shared-equity models that empower families rather than exclude them.
Thirty years ago, one of us co-wrote a book titled Housing Partnerships, which outlined a vision where investors could co-own homes with equity investors to make homeownership more accessible. Applied to post-fire Altadena, this could transform “vultures” into “eagles”—with investors providing a source of economic support that can lift up communities.
Here’s a sketch of how it could work.
Instead of private equity investors buying entire lots outright, they would enter into a formal housing partnership agreement with existing or prospective homebuyers, purchasing a portion—say, 50 percent—of a rebuilt home’s value.
As an example, consider a young family interested in a $1 million rebuilt property in Altadena. Under the traditional model, they could secure a mortgage for 80 percent of the value after a 20 percent down payment (a sizeable $200,000), saddling them with substantial debt in a high-interest environment. In our proposed shared-equity approach, both the down payment and the mortgage would be cut in half, substantially reducing the upfront costs to the family. An equity partner would put up the remaining half of the cost of acquiring the house.
The equity partner would also cover half of the property taxes, homeowners’ insurance, and major maintenance expenses, with the family, in return, paying the equity partner half of the market rent on the property. The equity partner would share proportionally in any future capital appreciation (or depreciation) when the home is sold, but the family would occupy the property full time, make decisions on maintenance and improvements (with mutual consent on major changes), and gradually build their own equity stake through mortgage payments and house price appreciation.
The equity partnership substantially reduces the family’s upfront costs while keeping the ongoing monthly costs roughly similar to the traditional financing approach.
This partnership can also be used to help fire victims to rebuild with confidence. In this case, the equity partner would cover more than half the cost of rebuilding, since the existing family is credited for the current value of the land. The equity partner also has an incentive to work with the family to incorporate efficient fire-risk mitigation into the rebuilding.
The benefits are multifaceted. Families who want to rebuild can tap into more capital to remain in their neighborhoods. New families gain access to desirable neighborhoods without overleveraging, fostering owner-occupied stability that preserves community character. Private equity, meanwhile, secures steady returns through exposure to residential real estate and equity growth.
This model flips the zero-sum game: rather than displacing locals, investors acting as equity partners enable them—potentially increasing owner-occupied housing in areas like Altadena, where fewer than 60 percent of homes were owner-occupied before the fire. Over time, this financing model could expand outside of fire-damaged neighborhoods helping to raise California’s low national ranking in homeownership rates.
The state of California can facilitate the equity partnership option by certifying equity partners and making sure that the contracts are clear and transparent, and that they preserve the homeowner’s right to terminate the contract at any point. In cases where the termination does not involve a sale, the contract needs to clearly specify how to determine the “value” of the property.
In a blue state like California, where anti-corporate sentiment runs high, this proposal would reposition private investors as enabling rather than inhibiting the American dream of homeownership and as playing a positive role in rebuilding damaged communities.
