A small yet growing number of lawmakers have introduced bills in recent weeks aimed at restricting private equity firms from purchasing homes. However, some of the most prominent voices in private equity say politicians are misguided in their quest to fix the nation's housing woes.
The most recent example landed last month when a Republican state senator in Virginia introduced a bill that would cap how many homes firms could own at 50. Sen. Glen Sturtevant's proposed legislation came a week after a similar measure was introduced in Texas by a Democratic state senator.
Perhaps the most restrictive of all proposals is in New Mexico — where Democratic state senator Harold Pope Jr. introduced a bill earlier in January that would completely ban private equity from owning single-family homes in the Land of Enchantment.
Pope said for years, he's watched residents struggle to find an affordable place to live.
“I look at this [legislation] as gaining access to home for consumers,” he said in an interview. “I don’t believe the properties should be used for [institutional] investment. Some will see this as intense, but I think we’re in some drastic and harsh times. We need all the tools available to help people get access to homes.”
In Texas, state Sen. Juan Hinojosa filed a bill calling for investment firms to be limited to ownership of 10 single-family homes if they are used as rentals. If passed, the limits would not apply to nonprofit organizations, operators of special needs homes or employers who are renting out properties to an employee. Investment firms that rent out more than the 10-home limit would be fined $100,000 for each additional property, the measure states.
Hinojosa's bill has been parked in a state senate committee since last week.
The bills indeed come from different corners of the nation, but they stem from the same argument. Lawmakers argue that private equity firms buy large swaths of single-family homes and convert them into rental units to generate huge profits — thus making those dwellings unavailable for families to purchase. When private equity buys thousands of homes, it shrinks the potential pool of affordable housing for average Americans, lawmakers have said.
But the share of homes bought by private equity appears to be small. A 2024 report from the U.S. Government Accountability Office found that only 32 institutional investment firms owned 450,000 single-family rental homes across the country in 2022. These investors own about 2 percent of single-family rentals, the report said.
In a January public address in Albany, New York, Gov. Kathy Hochul said there are stories in the Empire State of residents not buying a home because "they lose out to an all-cash offer from a faceless, nameless corporation with no connection to the community." Pope said he has heard similar stories in New Mexico as well.
"Corporate landlords co-opt our housing stock for short-term rentals or even worse, they just let homes sit vacant while the values soar," Gov. Hochul said, vowing to restrict private equity homebuying in New York.
At the federal level, Democratic Sen. Jeff Merkley from Oregon and U.S. Rep. Adam Smith from Washington state introduced the End Hedge Fund Control of American Homes Act in 2023, which sought to tax private equity firms if the corporations owned more than 50 housing units. The measure never made its way to a full Senate vote.
A spokesman for Merkley said in an emailed statement that the lawmaker plans to reintroduce the federal measure this year and make it even stronger.
Investors’ take
To be clear, private equity buying homes is a sticking point these days because the nation is experiencing a severe affordable housing shortage. Homebuilders have not been able to keep up with U.S. demand, and many homeowners have been unwilling to list their properties for a host of reasons. Lawmakers, in their proposals, say they're introducing bills so more homes would be available to purchase for average Americans.
Leaders in the private equity space meanwhile disagree and argue that limiting their purchases will not solve the nation's larger lack-of-homes problem. A heavy body of research, including the Government Accountability Office report, supports their claims. A CoreLogic study from December also found that institutional investors are only a tiny sliver of the homebuying activity taking place.
“Private equity investments represent less than 3% of the single-family rental market," the American Investment Council, the trade group that represents private equity firms, said in an emailed statement. "When private equity firms do invest in a community, they have a strong record of improving housing and services for residents.”
A November 2023 study from the Brookings Institution that looked at private equity's presence in the homebuying market found that "there is no conclusive evidence that investor ownership does or does not crowd out first-time home buyers."
Private equity firms argue that they're helping the housing market, noting that they often buy homes in need of some fix, renovate them and make the unit available for someone to live in, rather than remaining a neighborhood eyesore. If new laws restrict that type of activity, it would be tougher for Americans to find affordable housing, they argue.
“Simply put, Americans should say no to any new restrictions on housing," David Howard, CEO of the National Rental Home Council, said in an emailed statement. "Single-family residential companies are making more homes and communities available to people who need them most, providing best-in-class, professionally managed homes for nurses, teachers, and firefighters, and more, so they can live in the communities they serve."
‘Preventative measure’
Research aside, lawmakers said they're forging ahead with plans to restrict private equity homebuying.
Pope said he’s still compiling data on how many homes private equity groups own in New Mexico and realizes there’s a chance it could be very little. He still wants his bill to pass because “I still look at this as a preventative measure.”
“The goal of this legislation is to provide more access to purchasing homes for New Mexicans,” he said. “I want it to be where, when a home goes up for sale, consumers in New Mexico have an opportunity to make an offer and not have to worry about it being snatched up by a hedge fund.”