Democrats in the US have unveiled legislation that aims to curb the influence of hedge funds in the residential real estate market by prohibiting them from acquiring and owning single-family homes.
The proposed bill, titled the “End Hedge Fund Control of American Homes Act of 2023”, mandates hedge funds to divest all single-family homes within a 10-year period and subsequently forbids them from re-entering the market.
U.S. Representative Adam Smith, one of the leads in the bicameral bill together with U.S. Senator Jeff Merkley, highlighted the urgency of addressing the issue, emphasizing how the current trend of large investors purchasing significant percentages of single-family homes has intensified the challenges faced by middle-class Americans aspiring to own homes.
“In 1971, my father was able to buy the house I grew up in for $15,000 on the salary he earned as a baggage handler at SeaTac Airport. That same house would cost nearly $500,000 today yet wages for workers like my father have not kept up,” said Smith. “Too many families in the Puget Sound region and across the country are struggling to afford to rent or buy a home. Congress must take action to crack down on corporate greed and get hedge funds out of the single-family home market.”
The bill outlines a phased approach, requiring hedge funds to sell at least 10 percent of their total single-family home inventory to families annually over the 10-year period. After the full phase-out, hedge funds would be entirely barred from owning any single-family homes. Lawmakers argue that the increasing involvement of hedge funds in the housing market, especially in the aftermath of the 2008 housing crisis, has exacerbated the issues of housing unaffordability and wealth inequality.
Following the 2008 housing crisis, large private equity firms and hedge funds seized investment opportunities by acquiring substantial portfolios of foreclosed homes. The bill contends that this trend has intensified, with large hedge funds and institutional investors estimated to own around 574,000 single-family homes as of June 2022.
“The housing in our neighborhoods should be homes for people, not profit centers for Wall Street. Yet, in every corner of the country, giant financial corporations are buying up housing and driving up both rents and home prices,” remarked Senator Merkley. “It’s time for Congress to put in place commonsense guardrails that ensure all families have a fair chance to buy or rent a decent home in their community at a price they can afford.”
The bill has garnered bicameral support, with Democrat Representatives Nikema Williams and Linda Sánchez cosponsoring it in the House, along with Democrat Senator Tina Smith in the Senate. Additionally, the legislation has received endorsements from various organizations, including the Private Equity Stakeholder Project, CONSUMER ACTION, National Consumer Law Center, Washington Low-Income Housing Alliance, National Housing Resource Center, Americans for Financial Reform, and the National Housing Law Project.
As the proposed legislation makes its way through Congress, it remains a focal point in addressing concerns related to housing affordability and the role of hedge funds in the single-family home market. Critics argue that such measures may impact the dynamics of the real estate market, while proponents see it as a necessary step to ensure fair access to housing for all Americans.
Information for this story was found via Financial Regulation News and the sources mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
One Response
why is this restricted to single family [detached?] homes? wouldn’t the same analysis apply to townhomes, garden apartments, duplexes, on up to large apartment buildings? is the only acceptable form of residence to be occupant ownership? where and how do we draw the line?
what about dedicated airbnb/vrbo dwellings? should they be illegal? and the same for individuals [non hedge funds] who own, and rent [long leases] a few single family houses? what about an owner who lives in an apartment in a 3 family walk-up?
why restrict the focus to hedge funds? what about reits? are they ok? other forms of corporate ownership?
i understand the motivation of this bill, but it appears to lead to more questions than answers. if someone can clarify this, i would appreciate it.