Earlier this month, it came to me that the only way to resolve a stagnant home purchase market due to a bottleneck in housing inventory and still rising, unaffordable home prices is with legislation. As if Congress read my mind, it finally acted on the first week of December with the End Hedge Fund Control of American Homes Act of 2023.
U.S. Sen. Jeff Merkley (D-Oregon) and Rep. Adam Smith (D-Washington) introduced the bill, arguing that homes are for people, “not profit centers,” and that institutional investors are driving up home prices and rents. While Democrats are behind the bill, the intent should be bipartisan.
The legislation would ban hedge funds from owning single-family homes and require them to sell at least 10% of the total number of single-family homes they currently own to families yearly over a 10-year period. Then, after ten years of all homes sold, all hedge funds would be completely banned from owning any single-family homes.
The results could increase inventory at a faster pace, potentially lower home prices to reasonable costs for first-time homebuyers, improve demand at potentially lower rates if the Fed cuts rates next year as forecast, and bring in a vibrant purchase market compared to first-time homebuyer stagnation from the past few years.
It could also mean a healthier economy by improving the overall economic stability of the huge wealth gap in the United States today.
Columbia Business School economics professor Brett House said in a recent CNBC article that the economy is generally in good shape, but “since homeownership is the biggest investment decision most people make in their lifetimes, the real estate market is likely dampening many Americans’ feelings about the U.S. economy.”
For over a decade, particularly during the pandemic, the economic law of supply and demand for the housing market has been low supply and high demand as institutional investors tightened the inventory spigot and left fewer homes for average homebuyers to purchase following the 2008 housing crisis. Institutional investors had the capital to buy up a bulk number of foreclosed properties, making banks even on their balance sheets. Property management companies handled the investments, and once stabilized, single-family rentals were the products of real estate investment trusts (REITs).
This is where the hedge fund legislation can help alleviate tight supply to lower prices and alleviate an unaffordable housing market. Having institutional investors bid against the consumer is simply unfair, as all-cash buyers bidding at listing prices will always win the day. The seller has no concern about the sale being held up due to borrower financing issues or appraisals coming in too low.
In fact, the National Association of Realtors reported first-time homebuyer percentages of up to 28% for existing homes in October, but all-cash buyers were up to nearly 30%. In the same report, median existing home prices increased by 3.4% from October 2022.
Indeed, The End Hedge Fund Control of American Home Act of 2023 will require more staying power than its predecessor bill, the Stop Wall Street Landlords Act of 2022, introduced by Rep. Ro Khanna (D-California) in October of 2022. Khanna’s bill was to push higher taxes to institutional investors who purchased residential properties and turned them into single-family rentals. However, Khanna is now leaving Congress after his term ends. As for the new bill, Congress will need to define “hedge fund” to a general public still trying to figure out how to balance a checkbook.
A ”mom-and-pop” investor can actually help homebuyers who are unable to pay for a home that requires contracting to fix it up and sell. Many homebuyers wouldn’t have the capital or financing to do that. Hedge funds are a different story.
The new bill is going to need “teeth” in 2024, and the media will need to give it more air-time so that a younger generation of U.S. renters can comprehend its importance and rally around the hope for homeownership wealth.
On “Real Time with Bill Maher” earlier this month, host Bill Maher brought up the bill to his December 8 panel of two guests, but the short-lived comments and articles in the New York Times and other business publications have already moved out of the news cycle.
A Fox Business interview with Kevin O’Leary, chairman of O’Leary Ventures, during that time, wasn’t too helpful. “Let the markets be the markets,” O’Leary said of the bill.
It was that similar sentiment prior to the 2008 housing meltdown as the OCC only gave “guidelines” to no income, no job, no asset (NINJA) mortgages sold to Wall Street investors as AAA-rated securities. We know how that movie ended.
Despite a piece on 60 Minutes last year focusing on institutional investors buying homes in the Sunbelt, it still didn’t seem to catch on with the American zeitgeist.
In an election year focused on abortion rights, human rights, Trump trials, U.S. aid for two wars, border control, and a recession possibly averted, complicated hedge funds limiting homeownership would be difficult to make a top story for news media engaged in sensationalism, higher ratings, and profits.
And as with anything in Congress, the bill is reactionary. Congress returns home for the holidays in 2023 prior to two sides returning in 2024 and focusing on primaries and a Presidential election.
While construction numbers improved dramatically in November (it had stalled due to supply chain constraints), building new homes still provides an opportunity for institutional investors to compete to build their single-family rental inventory so the proposition for unaffordable new home prices could continue to impede a new generation of first-time homebuyers.
The End Hedge Fund Control of American Homes Act of 2023 can serve a purpose for current renters with the potential to become future homebuyers. Despite low unemployment numbers, wages appear to be keeping up with high home prices and rents, while housing is still the major source of inflation.
Granted, the new legislation from Sen. Merkley and Rep. Smith is not likely a panacea to truly narrow the increasing U.S. wealth gap and lower high home prices, but it is a good start, and depending on its successful passage, the legislation could be an effective means for a younger generation of families to put down roots, increase generational wealth, and even find hope in the American dream and a future to own a house they can call home.
Michael Murray is Director of Communications at Strategic Vantage, a PR and marketing firm based in Miami, Fla., serving the mortgage banking industry. As a Board Member for NAMI Montgomery County, Md., Michael helped create a scholarship for HBCU students focusing on mental health studies. In addition to blogging, Michael edits and writes plays–some performed on radio, television, and theater. He graduated with an English degree from the College of William and Mary.