President Donald Trump flexed his populist muscles earlier in January when he promised to ban Wall Street from buying up single-family homes.
“For a very long time, buying and owning a home was considered the pinnacle of the American Dream,” Trump posted to Truth Social. “It was the reward for working hard, and doing the right thing, but now, because of the Record High Inflation caused by Joe Biden and the Democrats in Congress, that American Dream is increasingly out of reach for far too many people, especially younger Americans.”
“People live in homes, not corporations,” Trump added.
The problem he’s addressing is real. Under President Joe Biden, the cost of a median-price home more than doubled in just three years. Inflating hit a 40-year high, and the interest rate hikes that occurred afterward drove mortgage rates to a 23-year peak.
In 1985, the median American family would have to save their entire income for three-and-a-half years to buy the median American home.
Today, it would take five years of earnings. With the situation this bleak, it’s no surprise that millennials are less likely to own homes than other generations were at their age.
The question, though, is why supply isn’t rising to meet demand.
For a clue, look no further than Invitation Homes, the country’s largest single-family rental firm. In 2021, the company admitted it targets “markets that we expect will exhibit lower new supply” along with the “stronger job and household formation growth” that increases demand.
Institutional investors thrive in places where people are clamoring for homes, but red tape makes it illegal or prohibitively expensive to build them.
Restrictive zoning, high minimum lot sizes, burdensome building codes, and endless environmental reviews are the real culprits behind the housing crisis. Every new home builder in America has to deal with some—or all—of these roadblocks.
Institutional investment, on the other hand, affects a comparatively tiny share of the housing market, and never accounting for even 2.5% of home purchases for a given quarter.
OK, so maybe Trump’s policy wouldn’t fix the problem, but it seems like it would help a little. So, why not pull the trigger anyway?
Because under current conditions, abysmal as they are, the single-family rentals these investors create are actually doing some good.
Imagine a 20-something married couple in an urban studio apartment. They’d like to move out to the suburbs and have a baby, but they can’t scrape together a down payment for the two-bedroom house they’re eyeing.
Their only option is to put off starting a family until they can save up tens of thousands of dollars. But if an institutional investor buys that same two-bedroom and puts it on the market as a rental, our couple might have a chance.
Not only can they skip the down payment and closing costs, but their rent will be almost 40% lower on average than the monthly mortgage payment for a comparable home. They’ll also never have to worry about replacing the roof, installing a new water heater, or making any of the other drastic home repairs that can drain a young family’s bank account.
In an ideal world, Wall Street wouldn’t be buying up single-family homes because the rate of new home construction would hold prices down and make them an unattractive investment.
Making that world a reality will require serious reforms.
The Trump administration is already doing its part by opening up underutilized federal land for residential use, keeping inflation down, and addressing population-driven demand pressures, but there’s only so much the White House can do. The regulatory barriers that keep prices high by preventing new home construction exist mostly at the state and local levels.
Banning institutional investors from buying single-family homes might generate some positive headlines, but it would have a minimal impact because it confuses a symptom of the housing shortage with its cause. And as with many illnesses, fighting the symptoms risks making the disease worse.
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