The language of the housing bill nearing the finish line in Congress would force build-for-rent community owners to sell their properties within seven years.
The Senate voted 89-9 on Tuesday to invoke cloture on the expansive housing bill—the 21st Century Road to Housing Act—following its passage in the House. Cloture allows the debate on the bill to end, in order to set up a final vote. That is expected later this week.
This bill combines language in the House version, plus provisions from a bill the Senate itself passed last year, but which stalled.
But the bill also restricts the purchase of new single-family homes by large institutional investors. It defines those large investors as companies that directly or indirectly own at least 350 single-family homes.
That language is new and comes after President Donald Trump floated the idea and encouraged its inclusion in his State of the Union address. The Senate last week advanced the bill, but it must reconcile with the House version of the bill before Trump signs it.
Trump has been an advocate of curtailing institutional investment in the housing market. He signed an executive order last month with a similar effect. But it created a carve-out for owners of build-for-rent communities.
The language in the investor ban of the Senate bill doesn’t have the same protection. Instead, those large investors who build or purchase single-family homes to rent them out would need to sell to homebuyers within seven years, according to the bill.
Codified in the bill’s Title 901, these restrictions include a 30-day right of first refusal for renters to purchase the homes. They also carry penalties for companies that fail to comply. The White House still voiced support for the bill after the Senate unveiled it.
Crowding-out effect
Lawmakers backing the ban say the effort is about preventing permanent rental neighborhoods.
Ohio Sen. Bernie Moreno, a Republican, said in a Senate floor speech on Monday that the “explosive” growth of the industry drives up prices and “crowd out” for-sale inventory.
“Massive Wall Street firms, private equity giants, and institutional investors are constructing whole communities of detached homes, only to lock them up as permanent rentals,” Moreno said. “These aren’t small landlords helping fill a gap. These are corporate empires turning housing into just another asset class.”
And he cited a poll by conservative data analytics firm GrayHouse, which in January found a broader institutional investor ban popular, most strongly with Republicans. But independents and Democrats also largely indicated support.
Academic studies continue to disagree on the impact of investors on the market. Some claim they drive up prices, while others claim they don’t. The Urban Institute found that, given the role single-family rental has played in the market since the Great Recession, it’s difficult to crowd out cause and effect.
Mounting criticism
In the days since the Senate advanced its version of the bill, industry experts have levied criticism on the investor ban.
The National Association of Home Builders, which supported the House version of the bill, has raised concerns about the new addition.
“NAHB believes the current version of the Senate’s housing bill would greatly curtail investment in the construction of single-family rental housing,” NAHB chief advocacy officer Ken Wingert said in a statement. “The president’s Executive Order included an exception for built for rent housing. Any housing bill that makes it to his desk should do the same.”
The American Enterprise Institute cautioned that targeting investors “could trigger the next housing bust.”
In an analysis of the bill, Tobias Peter, senior fellow of AEI’s housing center, disputed investors’ negative impact on the market. They inject private capital, often using it to renovate homes that homeowners can’t otherwise use. Single-family rental companies provide housing supply amid a housing unit shortage, and many of the renters in the units are not credit-ready to buy.
That risks forcing changes to financing that could cause more widespread delinquencies and market instability down the road, Peter said.
“Driving this capital away will not create more housing,” Peter said. “It will reduce investment, deteriorate the housing stock, and shrink supply. It will also be costly for renters living in these homes, whose lives may be uprooted as investors divest.”
Institutional investors own a relatively small share of homes in the country, but they are very concentrated in affordable markets, Realtor.com analysis shows.
Realtor.com senior economic research analyst Hannah Jones says that when considering these companies, “scale is critical.”
“While activity is elevated relative to the U.S. average in certain Sun Belt metros, institutional investors still represent a relatively small share of overall transactions,” Jones says.
Continuing negotiations
The investor ban language throws a wrench into what are already difficult negotiations over the bill, which is one of the most significant overhauls of housing law in decades.
Democrats and Republicans in the House and Senate widely supported their respective versions of the bill. But the Senate’s version has 40 provisions to the House’s 25 provisions, and they must be narrowed. Some House leaders have already expressed resistance to the Senate’s broader provisions.
Build-for-rent operators, meanwhile, have been boosting their advocacy efforts.
Bryan Smith, CEO of American Homes 4 Rent, a single-family-rental investor with about 61,500 units, told analysts on a recent earnings call that the company was reaching out to government officials about the bill.
“Active engagement allows us to be at the center of a lot of these discussions and really get our message across that we are a key part of the housing solution, especially as we’re addressing the supply shortage with our in-house development program,” Smith said.