The New Housing Law Sounds Good. But Will It Actually Help Homebuyers?

There is a lot to like about the idea behind America's latest push to address housing affordability.

More homes. Fewer barriers to building. More opportunities for homeownership. And an attempt to address the growing role of large institutional investors in the single-family housing market.

Those are worthwhile goals.

But there's one part of the new housing legislation that leaves us with a question:

Will restricting future institutional purchases actually help ordinary homebuyers if the largest existing owners get to keep the portfolios they've already accumulated?

The Grandfathering Problem

One of the arguments behind restricting institutional ownership is straightforward: when very large investors compete with individual buyers for single-family homes, particularly entry-level homes, that additional demand can make an already difficult market even harder for families trying to buy.

But restricting future growth doesn't undo existing concentration.

Companies that accumulated enormous portfolios before the restriction aren't suddenly required to sell those houses back into the traditional housing market.

• They keep the homes.
• They keep collecting the rent.
• They retain the efficiencies that come with operating at scale.
• And they retain the market position they spent years building.

Meanwhile, smaller competitors face restrictions that may prevent them from ever reaching comparable scale.

That creates an uncomfortable question:

Could a law intended to limit institutional dominance inadvertently protect the competitive position of the institutions that are already dominant?

Big Doesn't Always Mean the Same Thing

We're also not convinced that the number of homes someone owns should be the only meaningful distinction.

There is a significant difference between local and regional housing investors and enormous institutional owners managing properties across multiple states.

A local owner is operating in the same housing market as the people renting those properties.

• They know the neighborhoods.
• They use local contractors and service providers.
• They understand the local economy.
• And, importantly, they have a reputation in that community to maintain.

That doesn't mean every local landlord is wonderful or every national company is terrible. Neither statement would be true.

But local accountability matters, and housing policy should at least recognize that distinction.

Should Every Housing Market Have the Same Rule?

Housing isn't one national market.

Las Vegas isn't Portland.

Phoenix isn't Cleveland.

A rural housing market isn't Los Angeles.

Some communities desperately need additional housing supply. Others may be dealing with unusually high investor concentration. Some have land available but development barriers. Others simply don't have enough buildable land.

That makes us wonder whether at least some institutional-ownership policies would be more effective at the state or local level rather than relying primarily on one federal definition.

States and communities may be better positioned to determine where institutional ownership is actually creating a problem, and where investment may instead be helping create or rehabilitate needed housing.

The Bigger Issue Is Still Supply

Ultimately, affordability comes back to something much more fundamental:

We need enough housing for the people who want housing.

Institutional investors can affect competition for individual properties, particularly in certain markets. That's worth addressing.

But restricting who can buy existing houses doesn't build another house.

Increasing housing supply, making responsible development easier, encouraging competition, expanding access to financing and creating realistic paths into homeownership all deserve at least as much attention.

Fortunately, the broader housing legislation does address a number of those issues, including development barriers, housing programs and financing.

That's important.

We just aren't convinced that limiting future institutional ownership while preserving enormous existing portfolios completely solves the problem it's intended to address.

So How Does This Help the First-Time Buyer?

That's the question we keep coming back to.

Imagine you're a first-time buyer trying to purchase a starter home.

Does this law create another starter home in your neighborhood?

Does it cause one of the thousands of houses already held by institutional owners to come onto the market?

Does it meaningfully lower the price of the home you're trying to buy?

Maybe, over time, some of these policies will improve competition.

We hope they do.

But good housing policy should ultimately be judged by what happens to the person trying to find an affordable place to live, not simply by whether we've limited the size of the next institutional investor.

We'd rather see policies that encourage more housing, more competition, more pathways to individual ownership and greater local investment and accountability.

Because if the goal is affordable housing, that's the result that ultimately matters.

This article is general commentary and educational information regarding housing policy and is not legal, tax, investment or financial advice.