Washington finally has a definition for the big “institutional investors” they want out of the housing market. In fact, do a few of those.
Lawmakers have begun to define those owners of large buildings in several new bills. This follows the January executive order signed by the President Donald Trump for the federal government to begin making policies that prevent large corporations from buying single-family homes.
That order did not create the definition of a large investor. But it ordered the Treasury Department to start making one.
The National Association of Realtors® has supported the push, saying it shares the goal of opening up the housing supply.
“We share our mission to ensure that there are enough places for people to live and to increase access to homeownership—especially for first-time homebuyers—and to ensure that the housing policy strengthens communities rather than reduces opportunity,” it said. Shannon McGahnsenior vice president and chief advocacy officer at NAR.
Institutional investors have a relatively small share of the overall housing market, but are concentrated in certain cities, leaving some communities more affected than others.
“The main issue in all these proposals comes down to definitions,” it said Hannah Jonessenior economic research analyst at Realtor.com®. “How policymakers define ‘major investor’ will determine who is actually affected and whether policy meaningfully changes housing market outcomes.”
What a great size
None of the bills are now legal, which means the definitions can change. But the first two metrics are common in debt: Targeting investors by number of homes, and targeting investors by assets under management.
The Wall Street Journal reports that Trump has distributed a guideline that puts the biggest investors in 100 houses. He wanted to see that coordinated in a package of joint houses working through Congress, without success.
A new bipartisan effort in Congress to codify the ban defines large investors in assets under management. One bill targets companies that have $150 million in assets under management, or are affiliated with such a business. Another imposes additional taxes on businesses starting at $50 million in assets under management, to encourage diversification.
Democrats have proposed a bill to reduce the tax break for homeowners. The language in their bill is aimed at those with 50 or more single-family homes.
Several states have also moved to incorporate similar laws. Georgia lawmakers, for example, have passed a bipartisan bill targeting investors with 100 homes and $375 million in assets under management, and managing mutual fund investors. Some lawmakers also put caps on having 500 or 2,000 homes in the state.
Using assets under management is straightforward and a clear financial metric, but it risks pulling in separate regional operators or family executives who aren’t necessarily the type of large landlords being considered in the real estate debate, Jones said.
“That’s the challenge [assets under management] it doesn’t really show exposure to the single-family housing market,” Jones said. “A firm can manage $150 million in all apartments, commercial properties, or mixed portfolios and only have a small history of single-family.”
Meanwhile, basing the metric on the number of homes has risks at all levels. It’s not all that unusual for small and medium-sized landlords to amass a portfolio of more than 50 properties, Jones said.
On the other hand, the domestic limit of 500 may exceed some institutional players, especially if ownership is organized across multiple LLCs, Jones said.
The ‘ripple effect’
The Brookings Institution said in its analysis that Trump’s pitch eased the role of institutional investors in the rental market. Even though they are a small part of the market, they create a labor force that can translate into lower rents, he wrote. Joe Gyourkoa non-resident.
Also, a blanket ban risks a “ripple effect” on the market. Gyourko pointed out how private equity was allowed into the market after the subprime mortgage crisis because it underpinned the decline in housing prices in the Great Recession.
“Prohibiting the purchase of single-family homes by large rental companies will result in a very small increase in the number of homes available for purchase, and some families will benefit from living in them,” said Gyourko. “However, some families who would benefit from renting the same house are no longer able to do so.”
The American Enterprise Institute said small investors—mom-and-pop shops with only a few locations—own about 11% of single-family homes. It is these organizations that compete with home buyers, says AEI. They also have the advantage of mortgage credits from Fannie Mae and Freddie Mac.
“Small investors using GSE financing can borrow at interest rates approximately 90 to 100 basis points lower than comparable loans to private market investors,” AEI said. “For a $250,000 home, that profit translates to about $170 a month—more than enough to get a first-time buyer going without paying a dollar upfront.”
Institutional investors look for options
Understanding the realities of the investor market takes a little. Take Atlanta, for example. Based on data from Cotality, the capital of the largest investors, with a share of 11.4% of the single-family market.
An analysis of Realtor.com data shows investors with more than 100 homes made up 4.1% of all single-family purchases by 2023.
Mom-and-pop investors with 10 homes accounted for about the same number of purchases there, said economist Realtor.com. Jake Krimmel.
Quinn Residences has about 5,100 units in rental communities, including a dozen in the Atlanta suburbs.
Richard RossThe CEO of Quinn Residences, wants to be clear and raise their requests to the government, worried about the consequences for their companies.
Build-to-rent units are designed differently, with hard surface floors, appliances, and other features that expect more wear and tear from tenants.
While Trump’s executive order exempts leases, the pending bills do not. Ross says controlling investors in the space discourages them from building and operating communities, and this contributes to the problems facing the market.
“There will be unintended consequences for housing supply,” Ross said. “And supply-side risks prevent upward movement.”
Jones agrees.
“Unlike investors who buy existing homes, developers can add new features,” Jones said. “Without a carve-out, there is a risk that policies intended to limit competition for existing housing may discourage new single-family construction, which could work against long-term affordability goals.”
The dynamics in Atlanta are playing out in other cities, according to Krimmel’s knowledge. Over the past three years, institutional investors made up 5.1% of single-family purchases in Charlotte, NC, and 3.8% in Jacksonville, FL. Mom-and-pop investors still have the highest share of purchases in both cities.
“These proposals may change behavior on the fringes of certain metros, but they are unlikely to single-handedly change affordability across the country,” Jones said.
McGahn, with NAR, said opening up existing inventory, addressing regulatory barriers, encouraging new construction, and supporting responsible development “are all important aspects of addressing housing affordability.
“That includes overhauling outdated profit limits that haven’t been revised in decades and are now discouraging longtime homeowners from selling, reducing mobility and limiting the number of homes available to new buyers,” he noted.
