Crackdown on Hedge Fund Homebuyers Won’t Lower Housing Prices, Economist Argues

Published by | May 9, 2024

Proposed congressional legislation to ban Wall Street hedge funds from snapping up single-family homes would likely have little impact on home prices, one economist has argued.

“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.”

Citing data from the latest® investor report, Ryan 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.

One such bill, 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.

While the campaign against institutional homebuyers has largely been a liberal cause, some conservatives have also voiced their concerns about Wall Street’s role in the housing market.

Texas Gov. Greg Abbott, a Republican, called in March for the state’s legislature to consider new laws restricting institutional homebuying.

“I strongly support free markets,” he wrote in a post on the social media platform X. “But 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.”

However, while home affordability is a problem nationwide, especially for first-time buyers, Ryan argued that hedge funds are not to blame, and questioned whether banning them from the market would have a significant impact.

Ryan wrote in his new report that lawmakers’ “current efforts to restrict institutional buying of single-family home won’t put downward pressure on house prices if enacted, as their market share is minimal.”

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