The Volokh Conspiracy
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Barring Institutional Investors From Buying Homes Won't Make Housing More Affordable - and Would Likely Make Things Worse
There is no evidence that institutional investors increase prices. Barring them from the market could actually exacerbate the housing crisis.
Donald Trump announced today he plans to ban the purchase of single-family homes by large institutional investors. As with many Trump actions, this is not something the president actually has the authority to do. Real estate transactions and property ownership are generally subject to state, not federal authority. And any federal intervention - if constitutional at all - must at least be authorized by Congress.
In addition, barring large investors from the market is unlikely to mitigate the housing crisis, and could easily make things worse. There is no truth to claims that large investors are somehow monopolizing the market and thereby increasing prices. Large institutional investors (those who own 100 or more homes) own only about 3% of single-family homes nationwide. That's nowhere near enough to attain any kind of monopoly power, even if we assume (implausibly) that the large investors are colluding with each other. The fact that large investors account for a higher percentage of recent sales doesn't change that reality. Even if they were to increase their share of the housing stock several-fold, that still wouldn't be nearly enough to create any kind of monopoly.
For more on the reasons why large investors are not the cause of high housing prices, see my Cato Institute colleague Norbert Michel's 2021 testimony before the House of Representatives, on this subject.
Barring institutional investors may well actually make the housing situation worse, at the margin. Large investors may often be better-positioned to refurbish and modernize homes than small investors or individual homeowners. The big ones can more easily exploit economies of scale. In addition, where allowed to do so, large investors may be more likely to convert single-family structures to multifamily housing. Increasing the stock of the latter is essential for reducing prices and increasing housing for the working and lower-middle classes - the people most severely impacted by housing shortages. Even single-family rentals can still benefit less affluent people, since they can more easily afford to rent than to buy.
Large investors are easy to demonize. It is true, as Trump says, that "People live in homes, not corporations." Left-wing critics of large investors say similar things. But, obviously, corporations don't buy houses in order to live in them themselves, or to keep them empty. They buy them to make money. And the way to do that is to rent them out or resell to willing buyers after increasing their value. Either way, people in need of housing benefit.
Big investors don't create those benefits out of altruism. They do it to make a profit. But, to paraphrase Adam Smith's famous statement about butchers, brewers and bakers: "It is not from the benevolence of the builder, the developer, and the investor, that we expect our housing, but from their regard to their own interest."
Instead of attacking large investors and promoting other snake oil policies like rent control, tariffs, and deportations, politicians would do better to target the real cause of housing shortages: exclusionary zoning and other regulatory barriers that make it difficult or impossible to build new housing in response to demand, throughout much of the country. For an overview of these issues, see my recent Washington Examiner article on "Foot Voting, Housing, and Affordability."
I covered some of this ground in much greater detail in a 2024 Texas Law Review article, "The Constitutional Case Against Exclusionary Zoning" (coauthored with Josh Braver).
UPDATE: I have made minor additions to this post.
