*Editor’s Note: CC Biz Buzz is a monthly column series that features insightful commentary from a member of the Columbia College Robert W. Plaster School of Business faculty.

It’s that time of year again here at Columbia College. By the time you read this, we’ll have one more week of class and then finals week. Many of you have already turned your attention to the holidays and are busy either preparing or celebrating.

With the expected celebration comes the usual movie marathons and holiday TV shows reveling in the festive mood. One of my favorite movies is the Frank Capra now-classic, It’s a Wonderful Life. I enjoy the movie immensely and am struck by its ability to make an individual deeply think about their position in society and the universe. It can be a metaphysical experience for some or an enjoyable two hours on the couch.

What continuously intrigues me with each watching are questions about George Bailey, the main character, portrayed by the late Jimmy Stewart. What did George Bailey do for a living and why was his role so important to the community?

George Bailey worked for the Bailey Building and Loan founded by his father, Peter, and Uncle Billy. Most of you know the story of how young George is continuously pulled into the family business due to either family illness, economic troubles or moral responsibility.  George misses world travel plans and even his honeymoon in order to react or strengthen the company. Many of us can relate to the continuous predicament balancing desire and responsibility.

A developing tension exists throughout the movie between George and his — really the town’s — nemesis, Mr. Potter, who owns the local bank. The Bailey Building and Loan is a Savings and Loan, or “S&L.” The broader term is a “thrift.”  You don’t hear the term S&L as much anymore, for a number of reasons.

Primarily, the S&L business went through some very rough times in the 1980s as a number of them went into receivership in the late 1980s and early 1990s. The most damning cause was the S&L moved away from its basic model and started dabbling in markets that weren’t local to them and in product foreign to the traditional single-family home. The purpose of the S&L was to assist, mostly on a local level, with home ownership, specifically to provide reasonable financing via an amortizing loan and to make home ownership a part of the “American Dream.” 

Characters George Bailey, his wife, Mary, and their youngest daughter, Zuzu, in the holiday classic “It’s a Wonderful Life.”
National Telefilm Associates/Public Domain

During the Great Depression, Congress passed the Federal Home Loan Bank Act in 1932.  Since that time, single-family home ownership has been a fixture in American society, and all of its ancillary activities have been a catalyst for a large portion of the domestic economy. The Bailey Building and Loan was a vehicle to this home ownership, and Mr. Henry F. Potter wanted to close its doors since it was competition to his bank; his is a throwback to a dated model of lending with low debt-to-equity ratios, interest-only loans and bullet payoffs at the end of the term.

In the movie, Mr. Potter has a monopoly on “slum” housing in Bedford Falls. With the assistance of Clarence, George’s guardian angel, we see what life without George around and running the Bailey Building and Loan would have been like.

Without George in the picture, the town is left with Mr. Potter in charge and unchecked; it’s not a pretty site. Implied with this is the importance the local S&L plays in Bedford Falls, especially for the working class, and in 1930s and 1940s America.

Besides running the local S&L, George moonlights as a local developer himself. In a lighthearted but touching moment, George and his wife, Mary, welcome and “bless” the newest homeowners to “Bailey Park,” the Martinis. Donna Reed’s character Mary recites the following to the recent Italian immigrant family as she hands over the symbolic gifts: “Bread that the house may never know hunger; Salt that life may always have flavor; Wine that joy and prosperity may reign forever.” We might call Bailey Park “affordable housing” now.

The S&L debacle did not end problems for real estate, and we similarly saw this with the Great Recession and the most recent real estate bubble. The S&L “crisis” was bailed out via the Resolution Trust Corporation, which dealt with failed thrifts and their respective assets on their balance sheets. The Great Depression found relief via “TARP” (Troubled Asset Relief Program), which was intended to stabilize banking institutions (“too big to fail”), restart credit markets, support a specific insurance group, stabilize the U.S. auto industry and avoid foreclosures for homeowners.

Whether you technically call these a “bailout” or “clean-up,” you can rest assured the present and future American taxpayer is involved with the bill-paying. Looking at the expanse of the U.S. economic horizon from the Great Depression to 2009, we can easily state with confidence, “I’ve seen this show.” Similar players but in different costume; perhaps not always the same assets but certainly the same category.  

We are now on the other side of a real estate bubble, wondering how valuations will pan out, and if and how the real estate market will rebound. Changed with this picture, though, is a different set of characters, namely Private Equity (“PE”) and its involvement in single-family ownership.

We are now on the other side of a real estate bubble, wondering how valuations will pan out, and if and how the real estate market will rebound.

For the past decade, private equity has been involved in both the acquisition of tracts of single-family homes and multi-family properties. Due to their size, private equity firms already have access to capital markets, which the single homeowner does not.  This influences the cost of capital that such a firm can borrow at – almost always lower than your local mortgage holder. Many of these PE firms are also accessing government subsidized loans from the likes of Freddie Mac and Fannie Mae. These two quasi-governmental entities already had their problems back in the Great Recession. But the influence of private equity is not alone. 

We’re seeing such players as ultra-high net worth individuals like Jeff Bezos (single-family homes) and Bill Gates (farms) acquiring assets not in their usual wheelhouse.  Additionally, algorithmic real estate traders (see “fix & flip”) like Zillow enter certain “hot” markets but on a much larger scale.

It’s been noted the “bubble” of 2020-21 had as much to do with investor demand as single families trying to put a roof over their head. The HGTV model of repositioning a home and either adding it to one’s own personal portfolio or reselling it in a short-term manner has now been adopted by those with much deeper pockets than the local player. This is a game-changer and it’s something we should all be on the look-out for in the near future.  Some recent legislation has been posed at the Congressional level, but additional awareness and diligence are needed by all taxpayers to check any moves by the new Potters.

Here at Columbia College, we’re in a unique position as the sole academic partner to the National Association of Realtors. Our developing Real Estate Management degree and supporting certificates within the Plaster School of Business allow us to explore such issues and develop our students in preparation for a changing real estate environment.

In this holiday season, take some time to watch one of the classics, hopefully with a nuanced perspective as you commiserate with George Bailey during his existential angst of “what if?”.

I pray, to paraphrase Lucy from another holiday classic, that this special time of the year is not “run by an Eastern syndicate.”

James Dugdale is a visiting instructor of real estate management in the Robert W. Plaster School of Business at Columbia College. He is a licensed real estate broker in the state of Missouri.