Tucker Carlson, for one, has been for years carping about corporations buying single-family homes.
In 2021, when he still had a show on Fox News, Carlson objected to “private-equity firms like BlackRock” buying “entire neighborhoods of single-family homes and turning them into rentals.” His guest that evening was Chronicles Magazine’s Pedro Gonzalez, who said “financial institutions like BlackRock” are “plundering the future” by “buying up tons of real estate.”
The concern is often based on claims the first-time homebuyers are being priced out of the market by nefarious forces.
More recently, author and former investment banker Carol Roth wrote that many institutionally backed companies buy single-family homes just to convert them “to rental properties, taking those dwellings out of the buyable supply,” and shattering the American Dream. In that same commentary, she said she hates central planning and prefers free markets, but it feels that in this instance, those principles are a bit flexible.
Not all those who are complaining about corporate activity in the housing market are suggesting that private companies should be barred from performing a core objective of their businesses. But some are – and they need to be told they are wrong.
It is not a legitimate function of government to decide who can and cannot buy homes – or any other commodity. It’s not up to elected officials nor bureaucrats to choose sides, no matter how much they might believe that their conviction – no matter how deeply held – or popular opinion is on the side of angels. Government should never have that kind of power. Should it ever acquire it, it will eventually abuse it.
Our friends on the right who wish to restrict institutional investors’ freedom to participate in the housing market might be appalled to find themselves aligned with their political opposites. Rep. Adam Smith of Washington and Sen. Jeff Merkley of Oregon, both Democrats, have – for the second time in consecutive Congresses – introduced legislation to make sure that homes are for families and aren’t “profit centers for hedge funds.”
They say their bill will “put an end to the harmful practice of hedge funds buying up single-family homes” by imposing a tax penalty of 15% of the sale price when hedge funds buy additional single-family homes, and a “$5,000 per home tax penalty for hedge funds failing to fully sell off their currently owned single-family homes each year over a 10-year period.”
California lawmakers are mirroring the efforts we’re seeing from legislators across the country, even in red – hopefully meaning limited-government – states. The Assembly has passed a bill that would, according to its author, block “institutional investors that own more than 1,000 single-family homes” from buying more and “converting them into rentals.” It’s too easy to predict that in an already heavily regulated market, any legislation that stops private companies from investing in housing would never work as intended. Fortunately, it died in Senate committee.
The warnings about corporate ownership of housing carry an ominous tone. Recent headlines tell us that families are struggling “to buy homes amid corporate (a) ownership boom,” caution us about the plague of “housing-shortage profiteers” and corporate landlords who “are strip-mining communities.”
The reality, however, is far different. Contrary to the narrative, institutional investors are not playing a real-world game of Monopoly. Corporate ownership of multi-family housing is common, but institutional investors own only about 2% of single-family housing in the country. There are other, much higher figures out there, but they lump in small “mom and pop” investors, who own three to nine homes, and in many cases are just neighbors rather than heartless corporate barons.
It requires no deep digging to learn that institutional investors are not making housing more expensive and putting it out of the reach of financially struggling buyers. A couple of Reason Foundation policy analysts have noted that “census data show that the homeownership rate in the U.S. increased by over 2% since 2015, even as investor ownership grew.”
The facts clearly show there is no emergency in need of attention.
If anything, Americans should be happy that institutional investors are buying homes. Many entered the market by “buying distressed properties that no one else would buy,” says Laurie Goodman, vice president for housing finance policy at the Urban Institute, and in doing so put a floor on a market that was in need of one.
A large portion of these homes had fallen into disrepair, which affects neighbors’ home values. But due to their operational and financing advantages, say Goodman and Edward Golding, who at one time was also at the Urban Institute, “institutional investors can repair these properties more quickly and efficiently than an owner-occupant generally can.”
As a result, the value of homes with within a quarter mile, roughly five blocks, of one bought by investors is 1.4% higher than it is for homes that are farther away from the house. The worse the neighborhood, the greater the effect.
Institutional investors are not the villains portrayed in movies and on television, nor are they saints. They are, however, important cogs in the free-market machine. When public policy interferes with the moving parts there will be negative consequences – no matter who is pulling the levers.
Kerry Jackson is the William Clement Fellow in California Reform at the Pacific Research Institute.
