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It was only last month that President Donald Trump referred to the word “affordability” as a Democratic “con job.” His tune has changed since then, as he has offered a slew of ideas to help with the cost-of-living crunch, including during his speech at the World Economic Forum in Davos, Switzerland.
Some of his ideas have promise, such as an effort to lower mortgage rates through federal action. Others seem unlikely to see the light of day, such as a proposed 10% cap on credit card interest. Then there is his executive order, signed earlier on Tuesday night, seeking to lower housing costs by barring purchases by institutional investors. Its ultimate goal, making it easier for young people to start families and own a home, is laudable, even essential. Yet the approach fails a key principle of prudential policymaking: “first, do no harm.”
Populists on the Left and the Right have had a long-standing grievance about institutional investors “completely crowding out” the ability of families to afford a home. They greeted Trump’s announcement as a “huge,” “massive victory,” even a litmus test for who is and who is not genuine about supporting families.
Yet, while everybody loves a heroes-and-villains approach to political economy, that misreads the facts on the ground. Is there some threshold at which the share of American single-family homes owned by large institutional players could become a concern? Undoubtedly. If 20%, or even 10%, of homes were owned by hedge funds, there would be reason to be concerned that the American dream of ownership was being slowly transformed into a reality of permanent renters.
But pretty much wherever that line might be drawn, the United States is nowhere near it, with large institutional investors owning roughly 1% to 2% (depending on your definition) of single-family homes nationwide.
Investor-owned housing first took off after the Great Recession, when legislators tightened the generous underwriting standards that were seen as a cause of the subprime mortgage meltdown. With fewer lower-income households qualifying to buy a home, some private equity firms began acting as landlords.
These types of purchases rose during the unique conditions of 2021, when an unholy trifecta of low interest rates, pandemic-driven migration, and constrained supply collided. But nationally, that surge has since subsided back to pre-COVID-19 norms. The metro areas with the highest share of institutional ownership, places such as Charlotte, Dallas, and Tampa, tend not to be the ones where the price of housing has risen the highest. And where investor activity remains elevated, it is driven less by major Wall Street firms than by smaller “mom-and-pop” landlords and individual investors — the kind Treasury Secretary Scott Bessent promised a Davos audience would be left untouched by the White House’s final proposal.
The most charitable interpretation of the White House’s move is that it is largely symbolic. As the urban policy analyst Aaron Renn suggested, if institutional investors represent such a small share of the market, what’s the harm in banning them? Particularly if it could create political space for more substantive reforms later.
But even symbolic moves can have real downsides. Discouraging private investment in bringing new housing supply online could have real consequences — these investors can provide a guarantee that enables new rental supply to come online that otherwise might have been too financially risky for developers. And the White House’s executive order seems to recognize that possible downside, carving out a section of so-called “build-to-rent” properties from the ban.
On its own, the order might be expected to have only a marginal impact, focusing mostly on federal loan guarantees, which large institutions tend not to rely on. It proposes the kind of “first-look” proposals to give individuals a leg up over institutional buyers that the Biden administration highlighted during its time in office. Of greater concern is its call for legislation banning the practice, which could find a receptive congressional audience — and have nowhere near the impact its cheerleaders hope.
In new research, Baruch College economist Joshua Coven found that institutional investors increase the overall supply of rental housing and lower net rents, thanks to economies of scale (in other words, the hedge funds run a more efficient shop than the “mom and pop” landlords who own a couple of houses). His model predicts that if large-scale buyers were prevented from owning homes, the beneficiaries of that policy would not be individual would-be homebuyers. Rather, the winners would likely be those small-scale landlords who already make up the bulk of rental housing.
Other ideas on offer would continue to put upward pressure on housing prices. The White House is reportedly considering allowing families to tap retirement accounts for down payments, fueling demand while not addressing supply. Directing Fannie Mae and Freddie Mac to purchase $200 billion in mortgage-backed securities was a worthwhile idea, at least until the markets reacted poorly to the continued saber-rattling over Greenland. But lower mortgage rates help only if there are homes available to buy.
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There’s just no shortcut around needing to focus on supply — the kind of reforms Congress considered, but ultimately failed to pass, in last year’s Road to Housing Act. It should be an all-of-the-above push: fast-tracking permits for family-friendly multifamily housing; relaxing minimum lot-size requirements to allow duplexes, triplexes, and townhomes; and offering density or height bonuses in exchange for family-friendly elements. We need more houses, of more types, so young families are not forced to choose between overpriced single-family homes and delaying family formation indefinitely.
Housing affordability is a genuine crisis, especially for families. The White House deserves credit for recognizing the urgency of addressing housing affordability. Far from a “con job,” it’s at the core of what a pro-family economic agenda should consist of. But targeting institutional investors offers a cheap high without addressing the root cause of the problem. At best, the proposed executive order will have little effect. At worst, it could even be counterproductive. When better, more effective ideas are released, conservatives should cheer but this one falls short of the mark.
Patrick T. Brown is a fellow at the Ethics and Public Policy Center, where his work with the Life and Family Initiative focuses on developing a robust pro-family economic agenda and supporting families as the cornerstone of a healthy and flourishing society.
