Appelbaum: Barring investors won’t fix the housing crisis

President Donald Trump relishes a handy scapegoat and, on Wednesday, he picked one to blame for the nation’s housing crisis: investors that are buying large numbers of single-family homes and operating them as rental properties.

Trump wrote on Truth Social that he was taking steps to prevent such purchases as part of a broader program to make homes affordable again. He said that “people live in homes, not corporations.” He said he’d provide more details in two weeks, when he visits Davos, a Swiss ski resort not known for its affordable housing.

But there’s no need to wait for the details. Landlords are not the cause of the nation’s housing crisis, and any plan that reduces investment in housing is only going to make matters worse.

The crisis is a simple problem with a complicated solution. The problem is that the United States does not have enough housing. The hard part is building more. It is certainly easier, and perhaps better politics, to talk about barring investors, or imposing rent controls, or kicking immigrants out of the country, but none of that is going to do the trick. The way to make housing more affordable is to build more housing.

Construction has never fully recovered from the 2008 financial crisis. Since then, the population has grown faster than the supply of new housing, and the result is a big game of musical chairs with not nearly enough chairs. While estimates vary, experts generally agree that we need millions of new housing units to close the gap. Up for Growth, a think tank focused on the shortage, puts the figure at 3.78 million.

Half-baked

Almost a year after taking office, Trump has yet to put forward any meaningful plans to increase housing construction. Instead he has offered a number of half-baked ideas, as in November, when he suggested on his social media platform that his administration might introduce a 50-year mortgage loan.

His threat to ban institutional investors is the latest example. As is so often the case, Trump isn’t proposing a real policy with actual details. He’s saying things he thinks people want to hear, even if they’re pulled from the policy playbook of the progressives he loves to hate.

It is not even clear that Trump has the power to ban institutional buyers, nor that Congress would agree to pursue the idea. For the sake of this essay, however, let’s treat it as a real idea. Let’s pretend, for instance, that Trump means to endorse a bill introduced in 2022 by Rep. Adam Smith, D-Wash., imposing a 100% tax on purchases of single-family homes by any corporation with assets of $20 million or more.

The first thing to know is that such a proposal wouldn’t prevent most purchases of single-family homes for use as rental properties. In 2022, the Urban Institute estimated that institutional investors owned 574,000 single-family homes. That was less than 1% of the nation’s single-family homes — and less than 5% of single-family rentals. In other words, most rental houses are owned by small landlords.

A ban might have some benefits. Less competition from investors could push sellers to accept lower prices; buyers might be more likely to reside in the houses, rather than renting out the properties.

But it would punish renters. The rise of institutional investment in single-family houses is best understood as a postcrisis replacement for subprime mortgage lending. Tighter credit standards mean that millions of Americans can no longer obtain loans to purchase homes. Institutional landlords allow people to live in the same places but as renters.

Would it be better to expand lending? There may be an instinct to say yes. Americans generally regard homeownership as an end in itself, as a means of building wealth and as the basic building block of stable communities. But the housing crisis showed that homes purchased with subprime loans provided only the illusion of ownership. Borrowers did not build equity, nor did they establish enduring communities.

Giving renters options

The deep pockets of institutional investors aren’t just providing more options for renters. They’re also providing a fresh source of capital for homebuilders. Companies can sell excess inventory to rental companies, which allows them to build more aggressively. And, in some cases, they are building homes for rental companies. Last year, the homebuilder D.R. Horton completed a subdivision of 72 single-family houses outside Tallahassee, Florida, named the Cypress at Wesley Park. It rented the homes and then sold the whole thing to an investment firm called Topaz Capital Group.

Nobody would even blink if it was a 72-unit apartment building called the Cypress at Wesley Park.

Indeed, it’s important to remember that institutional ownership of homes is nothing new. Institutional landlords are a much larger and older presence in the apartment market. The nation’s largest owner of single-family rental houses, Invitation Homes, owned or managed about 110,000 properties as of September, which is a lot of houses. It’s also about one-tenth of the number of apartments owned or managed by the nation’s largest landlord, Greystar.

The apartment market does offer a cautionary tale. The Justice Department recently broke up an arrangement in which, it claimed, several of the largest apartment landlords, including Greystar, were collaborating through a third-party pricing service, RealPage, to raise rents. In a few metro areas, mostly in the Sun Belt, institutional investors have purchased enough single-family houses to potentially engage in similar shenanigans. It’s something for regulators to keep an eye on.

But let’s get back to the big picture. Here’s a litmus test that you can use any time politicians say they have an idea to make housing more affordable: Will it result in more housing construction?

It only helps if the answer is yes.

Binyamin Appelbaum writes about business and economics for The New York Times’ editorial board.