New provision would destabilize the market
America faces a housing affordability crisis, and it’s largely of our own doing.
Although it’s encouraging that national voices are now speaking out about issues often relegated to city halls and town councils, if some of the proposals being floated ultimately become law, then we risk adding fuel to the fire we started.
This week, the House of Representatives passed the 21st Century Housing Act, a strong step forward in increasing housing supply by reducing regulatory barriers and promoting new construction. These are time- and market-tested ways to increase stock and reduce costs.
Unfortunately, some lawmakers are considering a new provision that would restrict institutional investment in single-family rental homes. Although the sound bites in favor are appealing on the surface, this move would destabilize the housing market and erode affordability.
Millions of Americans will suffer these consequences.
Institutional investors are often portrayed as a dominant force in the housing market, but the reality is far more modest. They own just 1% to 2% of single-family rental homes nationwide. Even so, that small share represents millions of rental households who rely on renovated, professionally managed housing for stability, safety and access to good schools and jobs.
Proposals that would force institutional owners to divest these homes would directly threaten the security that those families currently enjoy. Instead of stable, reliable housing, they would face displacement. As leases are terminated so properties can be sold, millions of homes would be taken off the rental market abruptly.
Because many of these families don’t quite have the credit necessary to buy these homes, this would result in a de facto mass eviction with incalculable downstream effects. Families already stretched by inflation and rising living costs don’t need further uncertainty or disruption.
The broader market consequences would be just as damaging. Removing a large share of rental homes from the market would shrink rental inventory in many communities, particularly in fast-growing suburban and Sun Belt regions where demand already far exceeds supply. Fewer available rentals would mean higher rents.
In other words, a policy intended to improve affordability would almost certainly push housing costs even higher for the very people it claims to help. It’s an unfortunate story as old as time.
Many institutional owners operate as real estate investment trusts (REITs), which are widely held by public pension funds of cops, firefighters, teachers, and even 401(k) plans. A forced divestment would likely trigger fire sales, depressing asset values and rippling through financial markets.
The result would be a self-inflicted economic spiral that drags down retirement savings for millions of Americans who have no connection to the housing debate but would bear the cost after never having seen it coming.
Supporters of institutional divestment argue that selling these homes could immediately expand homeownership opportunities. That assumption ignores how the market actually works. A significant share of homes acquired by institutional investors requires substantial rehabilitation before they are safe and livable.
On average, institutional investment platform Amherst invests $38,000 per home in repairs, far beyond what many first-time buyers can afford up front. In fact, as we heard from the House Financial Services Committee this week, institutional capital often serves as this critical backstop for builders as they increase the supply of habitable homes in America.
Homeownership is increasingly limited to borrowers with credit scores in the high 700s, while many aspiring homeowners with low 600s scores lack adequate resources for down payments and cannot qualify for financing. Until credit access is meaningfully expanded and supply is increased, rental housing will remain a necessity for tens of millions of Americans and still a preference for many others.
Eliminating professionally managed rentals does nothing to change that reality. If Congress wants to tackle housing affordability, there are constructive paths forward, and states such as Texas, Florida and North Carolina have led the way: reform zoning and permitting, encourage new construction, modernize mortgage underwriting and expand supply across all housing types. Targeting a small segment of the market with punitive restrictions will produce more harm than good.
As lawmakers debate these proposals, they must consider the real-world consequences of restricting institutional investment in single-family rentals. With displaced renters, raised rents and shaken retirement savings, the fallout would be felt far beyond Wall Street.
At a time when housing stability is already fragile under the weight of regulation, layering on another is the last thing the United States needs and far from anything the American public wants.
