With affordability at historic lows, new bills make housing…less affordable and less available
December 11, 2023 – Recently-introduced legislation by Sen. Jeff Merkley (D-OR) and Rep. Adam Smith (D-WA9), the End Hedge Fund Control of American Homes Act, targets the legitimate development, investment, and ownership activities of America’s leading providers and builders of professionally-managed single-family rental homes and communities, and in the process will:
- reduce the availability of safe, quality, affordably-priced housing for hundreds of thousands of renter households nationwide;
- prevent middle-class families from renting housing located in neighborhoodsnear quality schools, employment centers, and transportation corridors;
- disincentivize the building and development of new units of much-needed rental housing;
- stifle innovation and entrepreneurialism in America’s housing market.
“America’s housing market is facing a crisis of underbuilding that has resulted in a supply deficit of between four and six million homes. At a time when housing affordability and supply are at historic lows, we need serious policy solutions and proposals to address this long-standing, and continuing problem,” said David Howard, CEO of the National Rental Home Council (NRHC). “But government policies alone won’t solve this crisis. We need to spur the production of all types of housing – owner-occupied and rental – by enabling more private market investment, innovation, and expertise. The Merkley/Smith bills will only limit the availability of affordably-priced single-family rental housing, ensuring sought-after neighborhoods remain off limits to families for no other reason than they choose to rent.”
In their support of the bills, Sen. Merkley and Rep. Smith rely on out of context and unsubstantiated claims about the single-family rental home market and the role of housing providers within that market.
First, it’s blatantly inaccurate to refer to the vast majority of single-family rental home providers as “hedge funds.” They are not. The market is comprised of a wide diversity of owners and builders, including publicly-traded companies, family businesses, and most significantly, individuals. Many of these owners and builders are integral parts of local housing ecosystems that make neighborhoods better places. In a study of rental housing providers published in December 2018, Fannie Mae reported “institutional investors” own just 1% of the single-family rental homes in the United States, compared to “small” and “very small” investors who own 95%.
Second, the implication that large providers of single-family rental homes have an ability to “control” housing markets is completely unfounded. A “fact sheet” for the bills states large providers own 574,000 homes, without providing any context for understanding the impact on America’s housing market. The 574,000 homes owned by large providers represent less than 0.4% of the 145 million housing units in the country. This means, more than 99.6% of the housing in the United States is owned by someone other than the housing providers targeted by the Merkley/Smith bills. As for the country’s rental housing market, large providers of single-family rental homes own just 1.3% of the 44 million units.
Third, the claim that large providers of single-family rental homes are somehow negatively impacting homeownership is not supported by an extensive collection of data, most notably, the Census Bureau’s reporting of the U.S. national homeownership rate, which is higher today (66%) than five years ago. (64.4%). Additionally, Census Bureau data show the amount of owner-occupied housing in the U.S. has increased by more than 10% (nearly 8 million units) over the last five years, while the amount of rental housing has increased by just 2.6% (1.1 million units). In a report published in July 2023, the Census Bureau revealed homeownership rates had increased across all U.S. regions and among all racial/ethnic groups between the years 2019 and 2022. For local context, homeownership rates are also higher today than five years ago in the home states of both Sen. Merkley (OR) and Rep. Smith (WA), and in each state’s largest MSAs (Portland and Seattle). Lastly, an NRHC report published in February 2023 showed the share of the single-family home market accounted for by rental homes has fallen 1.4% over the last decade.
The simple fact is, America needs more housing – of all kinds, owner-occupied and rental – to meet the needs of both homeowners and renters. With decades-high mortgage rates and rising home prices, Americans need more options to access quality, affordably-priced housing, not fewer. Recent research from housing industry consultant, John Burns Research & Consulting, has shown the monthly cost of renting a single-family home is $1,000 less than the monthly cost of ownership. For many families, the monthly savings of renting a single-family home has a meaningful impact on a range of quality of life issues and provides for opportunities to live in neighborhoods and communities that otherwise might not be available.
Large providers of single-family rental homes are working diligently to address the supply challenges confronting today’s housing market. Over the past year, NRHC members have invested over $2 billion in home upgrades, renovations, and rehabilitations. All five of NRHC’s largest member companies maintain A or A+ ratings by the better business bureau. Large providers are investing in communities and neighborhoods and will continue to enhance and expand the diversity of housing opportunities available for families considering the advantages of leasing a single-family home.
The bottom line is this: working families deserve access to great homes in great neighborhoods. No matter where Americans are in life, they should have options to meet their individual housing circumstances. This is what the Merkley/Smith bill’s flawed targeting of the single-family residential market misses – housing is a continuum, and single-family rental opportunities occupy an important place in that continuum. They are a solution to many families’ financial challenges, and often unlock opportunity – access to quality schools in quality neighborhoods – for those who need it. Housing, put simply, should not be viewed as zero sum. We need more supply, of all types, to help ensure we meet the housing needs of today – and tomorrow. And single-family rental homes are an important component for working families in any housing market.
Find out what others are saying…
“The past decade has seen increasingly tight housing markets due to strong demand and limited supply. Since the Great Recession, the U.S. has not built enough housing to keep pace with demand created by job and population growth, leading to historically low vacancy rates and rapidly rising costs.”
Jenny Schuetz, Brookings Institution, testimony before the U.S. Senate Banking Committee; September 12, 2023
“Today’s rising housing costs are years in the making. Fewer new homes were built in the decade following the Great Recession than in any decade since the 1960s – constraining housing supply and failing to keep pace with demand and household formation.”
Biden-Harris Administration Housing Supply Action Plan; May 16, 2022
“… [large investors] remain so small that their market share only has a modest impact on the overall percentage of investors. Another consideration is that institutional and small investors both heavily target under-market-value homes that need more repair than what most first-time homebuyers are willing to invest. Half of institutional investor purchases in 2020 were priced below the lower quartile price paid by first-time homebuyers.”
Freddie Mac, “What Drove Home Price Growth and Can it Continue?”; June 9, 2022
“Most [mega investors] buy properties that need repairs and then invest a significant amount in upfront capital to repair the properties. Institutional investors can put a more competitive bid on properties that need repairs, as they can repair these homes in a more cost-efficient manner than most homeowners can.”
Urban Institute, “A Profile of Institutional Investor– Owned Single-Family Rental Properties”; April 25, 2023
“As a result of the regulatory tightening after 2008, we need millions of new homes, and this new bill [Merkley/Smith] would force builders to sell them piecemeal, a few at a time. Rents are already undermining this country’s economic fairness and capacity. I shudder to think of the potential ramifications of this travesty. If this passes, I cannot fathom a functional source of new housing that could stop the bleeding in American rent inflation.”
Kevin Erdmann, housing economist, in Fast Company; December 10, 2023
The National Rental Home Council (NRHC) is the nonprofit trade association representing the single-family rental home industry. NRHC members provide families and individuals with access to high-quality, single-family rental homes that contribute to the vitality and vibrancy of neighborhoods and communities. For more information on NRHC or the single-family rental home industry visit www.rentalhomecouncil.org
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