Victory for Homebuyers? New Measures Aim to Block Investors from Dominating the Market

Rocketclips, Inc. /
Rocketclips, Inc. /

Across the U.S., lawmakers are rolling up their sleeves and squaring off against the big, bad institutional investors gobbling up single-family homes with cold, hard cash.

For years, hedge funds and other institutional behemoths have been snapping up residential properties faster than a Monopoly player on a caffeine binge landing on Boardwalk—with hotels. Critics say this buying frenzy boosts home prices and rent, squeezing regular folks out of the market. Imagine trying to buy your first home, only to find out you’re competing with a Wall Street tycoon’s wallet. Fair fight? Not quite.

Efforts to curb these practices are gaining momentum. In July 2023, Senators Sherrod Brown of Ohio and Ron Wyden of Oregon, both Democrats, proposed the Stop Predatory Investing Act to curtail tax incentives for corporate entities that buy residential homes in large numbers. Their plan? Make it financially painful for corporate investors to deduct goodies like interest and depreciation once they have 50 or more houses. That’s one way to spoil their profit party.

But wait, there’s more! Another legislative proposal titled the End Hedge Fund Control of American Homes Act was introduced. The bill aims to prohibit hedge funds from owning single-family homes outright, mandating that they sell at least 10% of their inventory annually to private families over a decade, culminating in a total divestiture from such investments.

Additionally, this proposal includes severe financial penalties for non-compliance. It slaps a $50,000 tax on each home they cling to and a whopping 50% tax on new purchases. Ouch. The collected taxes on this bill would support down payment assistance for individuals buying homes previously owned by these funds.

Senator Jeff Merkley of Oregon isn’t mincing words. He basically called out these financial juggernauts for turning neighborhoods into their personal ATMs. His take? It’s time for Congress to install some “commonsense guardrails” to make sure families can snag a home without having to outbid a corporation’s bank account. Merkley believes that the housing in our neighborhoods should serve as homes for people, not as “profit centers for Wall Street.” Merkley stated that large financial corporations are purchasing homes across the country, causing both rent and home prices to increase.

Another legislative effort, the American Neighborhoods Protection Act, would impose a $10,000 annual fee per property on corporations owning over 75 single-family residences. The funds would be used to assist prospective homeowners with down payments.

Despite these initiatives, progress has been slow, and these measures have yet to advance.

At the state level, similar actions are being taken. In Ohio, Senators Louis Blessing III and Nickie Antonio have proposed a bill to impose a $1,500 monthly tax on any landlord owning 50 or more single-, two-, or three-family residences in any one county, with revenue supporting housing affordability and local government funds.

Similar legislative proposals have appeared in California, Nebraska, New York, North Carolina, and Minnesota, reflecting a growing concern over this issue nationwide.

Even staunch free-market advocates are voicing apprehensions. Texas Governor Greg Abbott stated, “I strongly support free markets, but the corporate large-scale purchase of residential homes is distorting the market and making it increasingly difficult for average Texans to buy a home.” He emphasized the need for legislative intervention to protect local families. When Texas starts questioning free-market outcomes, you know it’s serious.

It seems like everyone’s getting into the act of trying to rein in these real estate barons. Whether any of it will restore the balance in favor of homebuyers and renters is still up in the air. These developments aim to preserve the accessibility and affordability of homes for individual buyers and renters across the country.