Real Investor Radio

Episode 46 | Institutional Ownership: Impact on Housing Affordability and Legislative Challenges

May 21, 2024

Episode Summary:

Legislatures in various states are considering laws to impose restrictions on institutional investors, limiting their ownership of single-family homes. The National Rental Home Council (NRHC), a trade organization advocating for single-family rental operators, is focused on combating negative perceptions of institutional ownership and its impact on housing affordability. However, there is debate on whether these restrictions on institutional investors will actually alleviate or exacerbate the affordable housing crisis. Some argue that limiting corporate investment in single-family rentals will reduce the future stock of rental housing and drive up prices. Others believe that more capital flowing into the market will boost housing supply and improve affordability.

Overview on Episode 46

Craig Fuhr and Jack BeVier discuss recent legislation targeting large institutional investors in single-family homes. Several states, including California and Minnesota, have proposed or considered restrictions on institutional ownership. These restrictions aim to curb high-volume homeownership by institutions, especially those owning properties nationwide.

Legislative Push Against Institutional Investors

In California, a proposed bill bans companies with over 1,000 homes nationwide from buying additional California properties. Minnesota also introduced a similar bill to limit institutional ownership of more than ten properties within the state. Though it didn’t pass, proponents are likely to revisit it.

Institutional Ownership Impact on Home Affordability

Many argue that institutional ownership drives up home prices, limiting opportunities for individual homebuyers. Fuhr and BeVier examine how these restrictions on institutional investors could ultimately impact home affordability and whether such policies achieve their intended goals.

NRHC’s Advocacy Against Restrictive Legislation

The National Rental Home Council (NRHC) actively opposes restrictions on institutional investors. They believe limiting institutional ownership could exacerbate housing shortages and harm affordability. NRHC members argue that restricting capital flows will reduce rental housing stock, affecting rent prices negatively.

Institutional Investment Trends in Housing Supply

Fuhr notes that despite criticism, institutional investors only own about 5% of single-family rental properties in the U.S. Yet, in some markets, they control as much as 30%, notably influencing prices and availability in specific regions.

Wall Street’s Long-Term Strategy with DSCR Loans

The conversation shifts to Wall Street’s role in DSCR loans for rental properties. BeVier highlights how large institutions could potentially benefit from acquiring more properties if investors default, especially under DSCR-backed loans with favorable terms.

Outlook: Will Restrictions Continue to Tighten?

Fuhr and BeVier expect more attention on restricting institutional investors, suggesting real estate professionals keep a close watch on these legislative trends.