Spikes in popular support for bad, but seemingly minor, anti-market policies can quickly spiral into more serious problems.
As Democrats and Republicans jointly wrote their 21st Century ROAD to Housing Act, many hoped the bill would be focused on lower government barriers to home construction. The House and Senate have yet to agree on a final product, but things aren’t looking good. On Thursday, senators heeded the demands of both President Trump and Democrat Elizabeth Warren and included additional restrictions on private investment into single-family rental housing.
Those restrictions will ultimately make housing less affordable, and their inclusion marks a growing trend of ill-considered, knee-jerk populism, or “slopulism” as online critics have taken to calling it.
Politicians are dishing out slopulism when they encourage their followers to judge policies only by considering their effects on a designated “good” or “bad” guy, without considering any potential collateral effects.
The “large institutional investors” targeted by the proposed housing legislation make convenient villains, but in reality, they collectively own less than 1 percent of the single-family homes across the country. At their peak, large investors purchased just 2.5 percent of homes sold, and their purchasing activity has since fallen sharply. The vast majority of single family homes are owned by individual families and small, “mom and pop” landlords.
That’s part of the reason why, when politicians first began to advocate a ban on “Wall Street buying up homes,” the reaction was mostly one of annoyance from those that hold to the free-market principle that the government shouldn’t be in the business of dictating whom people can sell their property to. After all, there aren’t many political points to score by standing up for a principle that could be caricatured as sticking up for Wall Street over would-be homebuyers . Plenty of pundits criticized the proposed bans, but with more of a groan than an uproar. The problem is that incomplete and misleading views of the world, when left unrefuted, can lead to truly damaging policies.
That’s exactly what happened to the ROAD to Housing Act. The version of the bill that sailed through the Senate includes not just the expected ban on institutional homebuying (which was bad enough), but also a prohibition on investors building single-family homes and renting them out for more than seven years.
Today, roughly 47,000 single-family homes and duplexes per year are constructed by companies that will rent them out to individual families, just as they would rent out apartments or condos. Homeownership is a great thing for many, but families are not being duped or exploited if they choose to rent. Those without a credit history or extensive savings may not be able to buy, and even well-off families may find the math favors renting if they don’t plan on staying in one spot long enough for the benefits of ownership to overcome the high upfront costs of inspections, realtors’ fees, and mortgage down payments.
When 47,000 families move into newly built rental units, it leaves more homes available for sale to families who want to buy them.
That’s why progressive Democrat Brian Schatz assumed that the ROAD to Housing Act’s effective ban on institutional build-to-rent must have been a “drafting error.” Clearly, “They wrote it wrong,” Schatz said on the Senate floor. Why else would his colleagues say that “anyone who wants to build housing and then provide it for rent is going to be forced to sell after seven years?”
Senator Elizabeth Warren confirmed that there was no mistake, but rather than engage with the criticisms of the bill she helped write, she doled out some more slopulism: “The policy is to block private equity from taking over the single family home, and that is quite deliberate,” Warren told reporters. “There are some folks in private equity who don’t like that, but it’s a very deliberate choice.”
Hopefully, the groundswell of criticism now emerging to the build-to-rent regulations will spur lawmakers to fix the bill before it’s too late.
But whatever the outcome, this episode provides an important lesson for free marketers: Spikes in popular support for bad, but seemingly minor, anti-market policies can quickly spiral into more serious problems.
The “broken windows” theory of crimefighting suggests that small infractions like vandalism and subway fare evasion should be policed aggressively because people feel emboldened to commit more serious crimes when minor offenses go unpunished.
Progressives like Schatz are too constrained by party and ideology to rebuke Elizabeth Warren for her petty offense of seeking to ban the 1 percent of home purchases made by large investors. That’s where true free marketers must step in, before Warren and her allies are handed yet another reminder that slopulism pays and take their efforts further.
Americans benefit from markets where individuals and corporations can freely buy and sell goods to each other. When politicians seek to encroach on that freedom for no good reason, no matter how small the encroachment and no matter how unpopular its target, free marketers must defend their principles to the hilt before things get out of control.