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New Bill In Congress Would Force SFR Giants To Sell Off Their Portfolios

Congress is eyeing a ban on Wall Street's investment in housing.

Democrats in Congress are looking to force institutional investors to not only sell off their amassed collections of single-family homes but also ban groups like BlackRock, Invitation Homes, American Homes 4 Rent and FirstKey Homes from buying more to convert to rentals. 

Sen. Jeff Merkley of Oregon and Rep. Adam Smith from Washington introduced a bill, titled the End Hedge Fund Control of American Homes Act of 2023, that also would impose tax penalties on these firms that would fund down payment assistance for individuals to buy the homes being sold by major institutions, The New York Times reported.

If enacted — unlikely until at least 2025 with a divided Congress — the bill would severely hamper what has become a rapidly growing sector of the commercial real estate market: single-family rentals, now commonly referred to as SFR investing.

All firms that manage funds pooled from investors would be subject to the bill and thus forced to sell off their SFR portfolios over the next decade.

“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,” Merkley said in a press release. “It’s time for Congress to put in place commonsense guardrails that ensure all families have a fair chance to buy or rent a decent home in their community at a price they can afford.”

The move is the latest in pushback against the SFR industry at all levels of government and among neighborhood groups as investors amassed homes across the country from individual households and turned them into rentals. 

During the depths of the pandemic, Wall Street jumped into the residential real estate market. By 2021, a quarter of all single-family rentals were owned by investors tied up in limited partnerships, limited liability corporations, estate trustees, real estate companies and real estate investment trusts, according to the Census Bureau's 2021 Rental Finance Housing Survey, up from 17% two decades before.

But investor activity in the single-family realm has slowed, especially after the Federal Reserve hiked the interest rate 11 times. Nevertheless, those firms continue to be a significant presence in the housing market that opponents say squeezes families out of purchasing homes, especially in entry-level housing stock and in lower-income neighborhoods.

Investors purchased 15.6% of all homes sold in the U.S. during the second quarter, down 19.7% year-over-year, according to a Redfin report. In the second quarter, investors purchased 50,000 houses in the U.S. totaling $36.4B, a purchase value that remains above pre-pandemic levels, Redfin reported. The start of 2022 saw investors buy a record 20% of all homes for sale in the U.S.  

Those in the build-to-rent and SFR space say they are providing much-needed housing to a growing demographic of people who rent either by necessity or by choice, and investors point to the lack of supply as the reason buying a home is now out of reach for many American families.

“Policies really need to be shaped and crafted so that they support the production, investment and development of new housing,” National Rental Home Council CEO David Howard told the NYT. “I think bills that work against that ultimately are just going to perpetuate the challenges we’re already facing.”

But critics say investors with deep pockets are a big reason housing prices continue to climb, exacerbating the housing crisis in the U.S.

Despite interest rate hikes, average U.S. home prices have continued to climb. The average single-family home sold for $312K in September, according to the S&P CoreLogic Case-Shiller index, up from nearly $227K in September 2020, a price climb that has been fueled in large part by a chronic lack of new construction. 

Smith acknowledged that the bill isn't likely to pass this session, but he said he hopes it is a tool to start a conversation about Wall Street’s effects on the housing market.

“Wealth has become concentrated in the hands of very few people,” Smith told the NYT. “This is just another way to do that — to commoditize housing so that investors get all of the money.”