Going after corporate home investors is a road paved with good intentions
For the past few years, the conversation about America’s housing affordability crisis has been dominated by a simple and politically appetizing narrative: Big corporations are buying all the homes and pricing out families.
I have dedicated several monologues on my radio show to this point. But then I looked at the actual data and changed my mind.
The populist myth is an easy story to tell. Big corporations are buying up properties and forcing would-be homebuyers into a permanent rental class.
For conservatives, names like BlackRock, the progressive private equity company, keep getting mentioned. Actually, it is Blackstone, a more conservative company, that buys some houses, but it is a minor player.
Legislators at the state and federal level are right to take housing affordability seriously, but banning corporations from buying residential homes won’t solve the problem. In fact, it risks making the situation worse.
Federal and state bills could reduce the supply of housing
Large corporations own less than 1% of the nation’s housing stock, with 17% being held by individual investors.
According to BatchData, the large corporate investors are also selling more homes than they’re buying, and roughly 60% of those sales go to ordinary homebuyers. If investors are the problem, why are they net sellers? Most of the corporations that own homes are actually individuals and couples who incorporate for liability protection.
Institutional investors play a role that often gets overlooked. They buy new homes directly from builders and rent them to families who want access to good neighborhoods but can’t yet qualify for a mortgage. Earlier this year, the Trump administration’s January executive order on the issue acknowledged the value of “build-to-rent” homes and carved them out of the broader ban on institutional investor purchases.
The U.S. Senate’s 21st Century ROAD to Housing Act initially included a similar exemption. But subsequent changes scaled it back significantly, and the current bill would force institutional investors to sell these homes after seven years. There is growing opposition to that requirement, with Sen. Elizabeth Warren being one of the few defenders.
The Georgia General Assembly is considering its own approach. A proposed state bill would cap the number of homes large investors can purchase. At first glance, that sounds like a straightforward way to stop investors from “taking over” neighborhoods. But once you look beyond the talking points, the picture changes.
Capping purchases could unintentionally reduce supply, making it harder for nurses, firefighters, soldiers and other working Georgians to find homes near work or the base where they serve. How so? Given mortgage rates right now, investors have more capital to buy homes than do individuals. Builders go where the money is. If there is no money to build close to where you work, builders will not build there.
There’s another risk, too. If the state forces companies to sell their rental properties, the resulting wave of rapid sales could depress home values. That matters because home equity is one of the largest sources of wealth for Georgia families. A well-intended policy that ends up shrinking equity is not a win for homeowners.
Among solutions: Smartly loosen restrictions on home building
The only way to improve housing affordability with long-lasting impact is by building more homes. When housing supply increases, prices begin to fall, all else equal. That benefits the 45 million renters who live in homes owned by investors — including 8 million low-income workers — as well as families hoping to buy.
But to build more homes, policymakers have to confront something harder than corporate narratives: restrictive land-use rules and permitting processes. The Georgia Public Policy Foundation has shown how minimum lot-size requirements and zoning limits slow development in counties like Paulding. Loosening these regulations without compromising basic standards would result in faster construction of more new homes. I have a friend who just bought 6 acres south of Atlanta. He did not need that much land, but his town requires a minimum of six-acres for a house to keep out “undesirables.”
Since 2015, the number of homeowners has increased by 11.4 million, while builders have completed only about 9 million new single-family homes. It doesn’t take an economist to see the imbalance. When demand outpaces supply, prices rise.
Lawmakers must be careful about well-meaning but counterproductive demand-side subsidies. When the federal government increases purchasing power without increasing the number of available homes, prices rise even further. As the American Enterprise Institute has put it, “If you increase purchasing power without increasing the number of homes, the extra money gets capitalized into higher home prices.”
There are smarter ways to help families move into homes. Lawmakers should consider raising the capital gains tax exclusion for home sales or indexing capital gains to inflation — options some members of Congress have already championed. These reforms would make it easier for ongtime homeowners to sell and open up inventory for first-time buyers without punishing people for inflation they didn’t create.
The solutions to our housing crisis are not mysterious. We can complain about Wall Street all day, but it won’t build a single house. Instead, we can expand supply, ease regulatory bottlenecks, and avoid demand-side policies that unintentionally push prices higher. Affordability should be the goal. But to get there, we need solutions that address the real problem, which is that we simply aren’t building enough homes.
Erick Erickson is host of the nationally syndicated “Erick Erickson Show,” heard noon-3 p.m. weekdays on WSB radio. He is also an opinion contributor to the AJC.
