This is largely an artifact of low rates. Most retail thinks in terms of cash flow: what can I afford to buy (relative to rent) based on monthly cost. This incl

This is largely an artifact of low rates. Most retail thinks in terms of cash flow: what can I afford to buy (relative to rent) based on monthly cost. This includes mortgage (both principal and interest), insurance and taxes. But investors, particularly institutions, think in terms of return on capital. The very important distinction is that the part of the mortgage payment going towards principal does not constitute a cost from a corporate accounting standpoint. Rather, principal payment goes on the balance sheet as accumulated equity in the property. In other words retail is sensitive to total mortgage cost, whereas institutions are only sensitive to the interest component. As interest rates fall to zero, principal grows to nearly 100% of the mortgage payment. Even at todays rates principal constitutes about a third of the mortgage payment from day one, giving institutions nearly 50% more buying power. (Particularly in low property tax states like California.) Besides raising rates, the only real option is to underwrite increasingly longer duration mortgages. When interest rates fall, extending the mortgage duration makes principal fall proportionately. Hence why many countries in the low rate macro environment have moved to 50 year mortgages to avoid systematically disadvantaging retail.