Proposed legislation may have no effect on home prices

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Published Date 5/13/2024

The drive to bring down-home prices is not going well, according to Realtor.com’s Keith Griffith, who reports that the proposed congressional legislation to ban Wall Street hedge funds from snapping up single-family homes would likely have little impact on home prices.

“With their small national market share, claims that large institutions inflate house prices seem exaggerated,” wrote Capital Economics Property Economist Thomas Ryan in a client note on Thursday. “In our view, lawmakers are looking for a new scapegoat to blame for unaffordable housing.”

Griffith cites data from the latest Realtor.com investor report that noted that large institutions with 50 or more homes represented only 13% of all investor homebuyers as of September. Instead, small “mom and pop” landlords with fewer than 10 properties made up the significant majority of investor home purchases.

The analysis comes as Democrats in the U.S. House and Senate push legislation that would force large institutional investors to sell off their single-family homes to family buyers. The “End Hedge Fund Control of American Homes Act” would impose steep penalties on hedge funds that own any number of single-family homes, as well as other institutions that own more than 50 homes.

“The housing in our neighborhoods should be homes for people, not profit centers for Wall Street. Yet, in every corner of the country, giant financial corporations are buying up housing and driving up both rents and home prices,” said sponsor Sen. Jeff Merkley, a Democrat from Oregon, when introducing the bill in December.

Bipartisanship on this issue is not altogether lacking however. Some conservatives have also voiced their concerns about Wall Street’s role in the housing market, including Texas Gov. Greg Abbott, a Republican, who called for the state’s legislature to consider new laws restricting institutional home-buying. While he says he strongly supports free markets, he also admits that this corporate large-scale buying of residential homes seems to be distorting the market and making it harder for the average Texan to purchase a home.

Affordability is no stranger nationwide, especially for first-time buyers, but Ryan argued that hedge funds are not to blame, saying banning them from the market may not have a significant impact. “Lawmakers’ current efforts to restrict institutional buying of single-family homes won’t put downward pressure on house prices if enacted, as their market share is minimal,” he says.

Total investor purchases of single-family homes peaked in 2022. Then it decreased sharply as interest rates began to rise, according to the Realtor.com data cited by Ryan. “Even at their peak in February 2022, investor purchases of single-family homes accounted for just 13.1% of all sales, falling to 10.8% in the first three quarters of 2023,” says Griffith.

Small investors account for most investor purchases of homes, he adds. “In the first three quarters of 2023, small investors accounted for 67.6% of investor purchases, while large investors accounted for 15.3%. Medium investors, with 10 to 50 homes, accounted for the remaining share.”

Ryan conceded that the Southern markets, where investors have concentrated their home buying in recent years, have seen outsized price growth. But he argued that it’s more likely that large investors are concentrating their buying in hot markets with higher returns, rather than the investor purchases driving up prices.

Realtor, TBWS

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