Capping Wall Street home purchases

[Marc Winter]

A lot of us small real estate investors should pay attention to what just happened in Washington last week: The House voted overwhelmingly in favor of restricting large institutional investors from continuing to buy up existing single-family homes once they are owning 350 homes.

In plain English, the government is starting to acknowledge what many local buyers and smaller investors have complained about for years--it’s pretty hard to compete against Wall Street mega-funds making all-cash offers on starter homes.

Now hold on--before anybody starts celebrating, this bill still has a long way to go in the Senate.

But I do think the bigger idea here matters a lot. And very interestingly the bill doesn’t prevent big corporates from building rentals--as many as they want--in fact, it basically encourages it.

I really think that’s the part most people will miss. The government isn’t trying to stop institutional money from investing in housing altogether. They’re trying to redirect it.

So, instead of competing with regular families for existing homes in established neighborhoods, the idea seems to be if giant investment firms want tons of rentals, let them go build them. That’s a very different thing.

Personally, I think there’s some logic there. If funds want to build entire rental communities from scratch, at least they’re adding supply. And it should be creating construction jobs, and putting new housing into the system instead of simply outbidding local buyers for existing homes.

Consider this: A young couple trying to buy their first house can’t compete very well against billion-dollar investment funds. Now, whether this actually lowers home prices, I’m not so sure.

Wall Street is paid to be creative, and their money always finds a path around restrictions. But I do think this points to something important-- growing political pressure from both sides to say, “We are protecting entry-level housing from large-scale consolidation”. At least, that’s what they want us to believe.

For smaller local investors, that could eventually create a bit more breathing room. The way I see it, real estate has always worked best when regular folks have a real path into ownership and small investing.

That’s probably healthier for neighborhoods, too.

Curious what others think about this one: Should large corporate investors be allowed to keep buying thousands of existing homes, or does it make more sense to push them toward building new rental communities?  Let me know.  Thanks.