The House just set a 350-home cap on hedge funds — that’s not a solution

The House Wednesday passed legislation capping institutional investor ownership of single-family homes at 350 units per entity, including provisions to incentivize new housing construction.

The vote reflects something worth noting: There is now bipartisan recognition in Congress that large-scale corporate ownership of single-family homes has distorted the housing market in ways that warrant a legislative response — and that we need to build more homes to address the underlying shortage.

Both of those things are true, and the bill deserves credit for addressing them. The supply shortage is real and will take years to correct. Zoning reform, permitting streamlining, and construction incentives are necessary parts of the answer.

But on the institutional investor question specifically, a 350-home cap is not the right response. And it is worth explaining why, because the distinction matters. 

Here is the problem with a cap: it accepts the premise that institutional investors belong in the single-family market and attempts to manage the degree of harm from that participation. But the harm is not primarily a function of scale. It is a function of the nature of institutional ownership itself.

When a hedge fund purchases a single-family home, it outbids a potential hardworking buyer. When it sets rents, it does so to maximize returns, not to cover costs. When it decides whether to evict, it makes that decision based on portfolio performance.

A House Financial Services Committee investigation........

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