Their prominence is usually a symptom of local housing shortages, not the cause.
At last, President Trump has some ideas for improving housing affordability. Unfortunately, his newest one is pulled straight from the economically illiterate playbook of progressives and right-wing populists alike: banning institutional investment firms from purchasing single-family homes.
Such large investors — typically classified as those that own 1,000 or more homes — are among the most popular bogeymen to blame for the nation’s housing woes. In a social media post this morning, the president identifies a much truer culprit behind exorbitant home-price growth in recent years: the bout of monetary inflation unleashed by Covid-era fiscal profligacy. But instead of proposing policies to address that root issue — such as, I don’t know, tightening monetary policy rather than loosening it — he launches into a non-sequitur attack on institutional homebuyers.
“It is for that reason, and much more, that I am immediately taking steps to ban large institutional investors from buying more single-family homes, and I will be calling on Congress to codify it,” Trump declared. “People live in homes, not corporations.”
He’s correct on that last point, at least. People do live in homes — and corporate ownership of said homes does not change that fact. The reason that institutional investors purchase single-family homes is not to give shareholders extra vacation options. Corporations don’t keep houses sitting around empty, simply waiting for them to appreciate. They rent them out to people.
Over two-thirds of U.S. houses are owned traditionally by occupants, but a large segment of Americans has always preferred to rent their homes, especially earlier in life when it’s more difficult to afford homeownership. Of the roughly 30 percent of single-family homes that are rented out, the bulk are owned by small “mom-and-pop” investors with between one and nine units — think of your local landlord. The large institutional investors that Trump is targeting own just 2 percent of single-family rentals, or less than 1 percent of all single-family homes. Hardly the chief villain behind the problems in the American housing market.
Progressives like Elizabeth Warren despise institutional home investors because they’re big and corporate, even though they comprise a sliver of the housing market. Yet renting a house from a large corporation is functionally no different from renting it from a neighborhood landlord. Institutional investors have no greater pricing power than any other owner — they can only charge what the market will bear, limited by the competition of countless other rental properties.
Right-wing populists like Tucker Carlson and JD Vance hate them because they romanticize homeownership, and they believe that every home purchased by Blackstone or another corporation cannot then be owned by an American family. But American families live in every house that investors put up for rent. These are families that likely cannot afford a mortgage yet, but rental companies enable them to live in a single-family home regardless. Banning their landlords from the market does not mean renters can magically afford to buy a home all of a sudden. It simply pushes them into another rental property that they don’t prefer as much. Meanwhile, empirical evidence shows that their former homes are acquired by richer homebuyers.
Institutional investors provide the most value in metro areas with very high-priced housing markets, as they allow lower-income families to live in places they otherwise could not afford. That is why the percentage of rental properties owned by large landlords is much higher than the national average in cities with elevated home values — 25 percent in Atlanta and 21 percent in Jacksonville, for example, versus only 4 percent in St. Louis and 2 percent in Columbus.
In this sense, institutional investors are a symptom, not a cause, of tight housing supply. The Urban Institute notes that “institutional investors do not change housing supply or demand. Investors buy houses only because there is a renter household willing to live in the home.” The reason that households are willing to rent is often that homes are too expensive for them to purchase, which is more common in areas where supply is constrained.
Banning institutional investors from buying single-family homes is such an appealing answer to tight housing markets because it’s easy and imposes no clear cost on voters, but it would do nothing to help struggling prospective homeowners. It would merely punish a small segment of renters who benefit from the options that large investors provide, while raising rents slightly for everyone else by decreasing overall supply.
Perhaps worst of all, it would distract from the real solutions that the U.S. housing market desperately needs: breaking down state and local barriers to new construction, such as exclusionary zoning laws, overly stringent building codes, and byzantine permitting processes. If Trump truly wants to expand housing availability, he should seek to liberate the businesses that provide it, not banish a disfavored few of them from the marketplace.