A pothole in the ROAD to Housing Act
Housing affordability is solvable, so we should try solving it
Large corporate buyers of single-family homes have drawn the ire of a broad coalition of both progressives and MAGA Republicans in recent months just as housing and affordability have become an even more central issue to voters. The momentum against corporate buyers even led to an executive order from Donald Trump aimed at preventing large institutional investors from buying “single-family homes that could otherwise be purchased by families.”
The section of the Senate-passed 21st Century ROAD to Housing Act titled “Homes are for people, not corporations” would restrict the purchase of new single-family homes by large institutional investors — companies that own, directly or indirectly, at least 350 single family homes. A more recent addition to the same bill would go a step further and force the sale of build-to-rent properties (single-family homes purpose-built for the rental market rather than for sale) within seven years of their completion.
The political intuition here makes sense at first. There is a limited supply of housing. Typical retail buyers are competing with highly capitalized speculators. The retail buyers lose in the end. Bada bing badaboom.
A quick policy fix that points the finger at an unsympathetic villain while giving hardworking Americans a solid win? Absolutely gold. It makes sense why these ideas are able to garner the support of a broad political faction looking to make housing more attainable.
But these appeals funnel momentum from the issue of housing affordability into misaligned policies that would ultimately do very little to bring down housing costs or increase the supply of housing.
Let’s all practice renter positivity
As much as we talk about this issue, institutional investors make up a very small percentage of the housing market. Brookings notes that institutionally owned single-family rentals are a very small share of the overall occupied housing stock, and even eliminating that stock as rentals would add only around 1% to 2% to the owner-occupied stock nationally, which is too small to materially solve affordability at the macro level. They are also highly concentrated in a handful of metropolitan areas. So, this will probably do nothing for affordability in most markets.
The worst part is that the bill also restricts one of the few segments of the housing market that is adding supply rapidly. Much of the recent growth in institutional investment has been in build-to-rent communities — which are composed of single-family homes constructed specifically to operate as rental housing. These developments are not homes that would otherwise be sold to families; they are homes that typically would not exist at all without institutional financing and large-scale property management models. Forcing the sale of these properties would probably disrupt investments into this type of supply, leading not only to distortions in the market but also significant impacts to the people who typically rent these single family homes.
This policy may be actually regressive. Much of US land is zoned exclusively for single-family ownership. A significant portion of American families are simply locked out of homeownership in the areas where they live and work. For these families, build-to-rent offers something that is likely unattainable. The families renting from institutional landlords are also likely not in the financial position to make competitive offers to buy a home. Simply reducing the supply of single-family rental homes does not turn renters into owners. It will just push renters to compete for housing in other places, typically apartment complexes which may not provide ample space to raise a family.
The people most insulated from all of this? The people who already own homes.
So, if the impact of one of these statutes isn’t meaningful to most markets and the other could possibly hurt renters: why is this something being pushed by bipartisan actors?
Well look at the polling!
The GrayHouse survey of 1,500 registered voters found 58% support the investor ban while just 22% oppose it, a net of +36 points. Republicans back it most strongly at 74% support with a +62 net favorability. Searchlight’s own polling found that 48% of voters believe that investors are one of the primary drivers of cost in housing.
With this type of support, it’s understandable why we are seeing this change in the ROAD to Housing Act. The Senate was able to identify a bipartisan boogeyman that they could all rally behind attacking. For an institution that can rarely find agreement, it’s noteworthy, but ultimately: what if it doesn’t pan out?
Back on the ROAD
So, if the bill from the Senate is made into law and you see the cost of housing continue to rise, then what? You defeated this unbeatable villain. You vanquished the dragon. An ideological battle was won for those who have been searching for a way to push back on billionaires, I guess?
The problem still exists.
There is a genuine risk in this kind of thinking in our political system. Americans already have a deep-seated distrust in the federal government. This doesn’t come from nowhere. It is built incrementally over the years by politicians who say “EUREKA!”, pass a bill, and Americans’ lives continue to feel worse. By continuing to hype this up as the silver bullet for our affordability goal, we are doing a genuine disservice to Americans and ourselves as public policy professionals.
That’s the trap of a well-loved, bad policy solution (or what the pundits call ‘slopulism’) — much of it polls very well, much of it isn’t backed by much data, and much of it is out of touch with the reality of being working class.
The real issue is that if we look under the bed to evict the boogeyman and save the day, we won’t find him. It will just be a reflection of us and our coalition.
The hard truth is that the culprit of housing unaffordability is the constituents themselves and the politicians who buckle. Exclusionary zoning, NIMBYism, and permitting bottlenecks are upheld and supported by people who turn out to vote and confront their local politicians at city council meetings. We all want housing to be cheaper, but many don’t want to put in the effort or use the political capital to educate voters on how to actually get there. Many just want a “push this for cheaper rent” button.
Gesturing towards shadowy boardrooms of unsympathetic Wall Street bankers wearing monocles and top hats is much easier than telling your local neighborhood opposition group that they are personally responsible for their children being unable to afford housing. So that’s what politicians do instead.
The investors that we’re maligning, as it would happen, are all too happy to watch this play out since they are the ones who primarily benefit from scarcity driving the price up from what’s fair.
If the policy doesn’t work, the people responsible for pushing this so hard likely won’t suffer any major backlash or consequences but political momentum on the issue of housing was consumed for a solution that didn’t help. Which sucks.
Housing affordability is solvable, but as long as we keep searching for a boogeyman we will continue to miss our opportunity.
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