A new federal law restricting large private equity firms from purchasing additional single-family homes marks the biggest policy challenge yet to institutional investors’ growing role in the U.S. housing market.
The legislation, part of the bipartisan 21st Century ROAD to Housing Act, became law after President Donald Trump neither signed nor vetoed the bill within the constitutional 10-day window while Congress remained in session, CBS News reported.
Among its most closely watched provisions is one championed by Sen. Raphael Warnock (D-Ga.), which prohibits large private equity firms from purchasing additional single-family homes.
The broader package also includes measures to increase housing supply, modernize the appraisal process, expand rural housing programs and encourage local governments to accelerate residential construction.
“This legislation is proof that when we center the people instead of the politics, we can get good policy done,” Warnock said in a statement.
The new restrictions follow years of growing concern over institutional ownership of single-family homes. While private equity firms have argued that professionally managed rental housing helps meet demand in undersupplied markets, critics say large investors have outbid families, particularly first-time buyers, with all-cash offers, reducing the supply of homes available for purchase.
Metro Atlanta has become one of the largest examples of that trend. More than 72,000 single-family rental homes in the region, more than one-quarter of the market, are owned by large corporate investors, giving the metropolitan area one of the highest concentrations of institutional ownership in the country, Warnock explained.
The trend extends well beyond Georgia. Since the aftermath of the 2008 financial crisis, private equity firms and other institutional investors have poured billions of dollars into single-family rentals, turning the sector into an established institutional asset class.
Rising home prices, elevated mortgage rates and limited inventory have intensified concerns that investors are competing directly with families for available homes.
Beyond restricting future acquisitions by large private equity firms, the law includes incentives for local governments to build more housing, reduces certain regulatory barriers, expands grants and forgivable loans for home repairs and weatherization, and incorporates appraisal reforms aimed at improving fairness in the housing market.
Whether the legislation materially improves affordability remains an open question. Many economists argue that the nation’s housing shortage is primarily driven by years of underbuilding, restrictive zoning and higher construction costs.
Even so, the law signals a notable shift in Washington’s approach to institutional ownership of residential real estate and could reshape how private equity approaches the single-family housing market going forward.
Photo: Garun.Prdt/Shutterstock
