Stephen Slivinski and Norbert J. Michel
Both of us have already explained why proposals from President Trump and Elizabeth Warren to ban large institutional investors from buying single-family homes are misguided. Now, the damage they threaten isn’t hypothetical—it’s already beginning to unfold sooner than expected.
Although functionally short of a “ban,” the bill (the “21st Century ROAD to Housing Act”) seeks to restrict the activities of institutional investors—namely, the proposed requirement that the houses built specifically for the rental market (build-to-rent, or BTR) must sell the properties within seven years of completion—hasn’t even passed both houses of Congress in its final form. But the mere threat alone that it might pass is already having a negative impact.
Recent articles in the Wall Street Journal and the Phoenix Business Journal point out that BTR developers are shutting down their slated projects, and some are losing their financing due to the regulatory uncertainty. For instance, TerraLane Communities has paused two projects ready to break ground—one in Arizona, one in Texas—totaling roughly 300 new homes.
“An entire industry nationwide is shut down,” Greg Hancock, founder of Phoenix-based Hancock Builders, told the Phoenix Business Journal. An early survey of just 14 build-to-rent firms found at least $3.4 billion in investment frozen — representing roughly 10,000 units of housing. That figure, according to the Wall Street Journal, likely represents only a fraction of the industry-wide impact across more than 1,700 firms. TerraLane alone has abandoned five prospective projects beyond the two it paused. Other developers are reportedly redirecting capital earmarked for rental communities toward data-center development instead.
So it seems that the odd alliance between the White House and populist anti-market members of Congress has already been successful at introducing new growth-reducing distortions into the housing market before the bill has even reached the president’s desk. The fact that it doesn’t have to even make it that far to do damage shows why we need to extricate the federal government (and state and local governments, too) from decisions to buy, sell, or build housing—or anything else, for that matter.
Markets are complex places composed of people trying all kinds of things to serve different consumers. They’re not composed of uniform “industries” striving to punish people, and basing legislation on that idea can go badly in all kinds of ways.
The Journal reports, for example, that “congressional aides said that during negotiations over this build-to-rent provision, the industry told them that build-to-rent units typically get sold within seven to 10 years anyway.” There’s no doubt that some investors—quite possibly the ones who spoke to these congressional aides—were happy to get the build-to-rent exemption, provided the bill included the 7‑year window.
But there’s no doubt that many other investors, as well as builders and others involved in the industry, find the 7‑year selling requirement catastrophic. It’s impossible for Congress to craft this kind of bill and make everyone happy, and that’s precisely why they shouldn’t do it. The federal government should stay out of it and let the market work the way it’s supposed to.