Study: Banning Investors From Buying Homes Leads to Higher Rents, More Gentrification

Home prices were unaffected by a ban on buy-to-rent housing in the Netherlands, but more affordable rental housing disappeared.

Institutional investors that buy and rent out single-family homes are increasingly scapegoated for driving up prices, gentrifying neighborhoods, and depriving working and middle-class Americans of the opportunity for homeownership.

They've come under fire from liberals like Sen. Jeff Merkley (D–Ore.) and conservatives like Sen. J.D. Vance (R–Ohio).

"In every corner of the country, giant financial corporations are buying up housing and driving up both rents and home prices. They're pouring fuel on the fire of the affordable housing crisis," said Merkley last year. He's introduced a bill to tax large investors' purchases of single-family homes.

Several Georgia municipalities in suburban Atlanta have gone so far as to ban build-to-rent housing or otherwise subject it to stricter regulation.

A new study suggests this handwringing is much ado about nothing.

Last week, a team of Dutch researchers affiliated with the University of Amsterdam and Erasmus University released a study on the effects of a new law letting municipalities in the Netherlands ban buy-to-let arrangements. In Rotterdam, the country's second-largest city, officials used the new law to ban investors from purchasing homes in specific neighborhoods.

That allowed researchers to compare home sales, home prices, and the characteristics of new residents between the two types of neighborhoods.

They found that banning investors from buying and converting housing to rentals worked in one sense: The share of investor-owned rental properties in affected neighborhoods fell, and the number of properties bought by first-time homebuyers increased.

On the other hand, however, these new homeowners tended to be richer than the renters they were replacing, and the costs of rental housing increased overall.

"The ban has successfully increased middle-income households' access to homeownership, at the expense of buy-to-let investors. However, the policy also drove up rents in affected neighborhoods, thereby damaging housing affordability for individuals reliant on private rental housing, undermining some of the intentions of the law," write researchers in the study published on SSRN.

The number of homes sold and overall home prices also stayed flat, according to the study.

This cuts against common arguments against investor-owned rental housing: that it's raising prices for everyone else.

Indeed, the Dutch study suggests that institutional investors are playing a productive role in the market by providing rental housing to people who can't qualify for a mortgage.

Another 2022 study likewise found that institutional investment in real estate increases neighborhood diversity by opening up more affordable rental housing options. That study did find that these investors were raising home prices overall.

As The Atlantic's Jerusalem Demsas noted in an essay from earlier this year pushing back on the anti-investor pile-on, these institutional investors are a small portion of homebuyers, owning only about 3 percent of single-family homes.

That challenges the idea that BlackRock's homebuying business is driving major national trends in home prices.

Institutional investors are similar to Airbnb owners and foreign buyers: small, unpopular participants in the housing market that get blamed for high prices caused by a general insufficiency of supply.

Policy makers would do better to look for ways to expand housing supply through deregulation of construction and mortgage finance than passing laws restricting who's allowed to buy a house.