Wall Street control of large portions of housing markets across America drives up rents, limits homeownership opportunities
Wednesday, November 30, 2022
Washington, D.C. – As our nation continues to face a crisis of housing affordability, Oregon’s U.S. Senator Jeff Merkley introduced the End Hedge Fund Control of American Homes Act, a piece of legislation aimed at ending Wall Street ownership of residential housing. While aspects of the housing crisis— including a supply shortage—will take years to remedy, others can be addressed immediately, including a ban on hedge funds and private equity firms owning and controlling large parts of the American housing market, and in turn dedicate revenue from this bill for down payment assistance to homebuyers.
“Everyone should have a safe, affordable place to call home,” said Senator Merkley. “In every corner of the country, giant financial corporations are buying up housing and driving up both rents and home prices. They’re pouring fuel on the fire of the affordable housing crisis that so many of our communities are facing, leaving working families behind. The housing in our neighborhoods should be homes for people, not profit centers for Wall Street. It’s time for Congress to put in place commonsense guardrails that ensure all families have a fair chance to buy or rent a home in their community at a price they can afford.”
Following the 2008 housing crisis, large private equity firms and hedge funds bought substantial portfolios of foreclosed homes as an investment opportunity. The federal government enabled this growth through bulk sales of federally-backed mortgages and foreclosed properties. This decision excluded ordinary families, and mission- driven non-profits from buying these homes and returning them to families in need of stable housing.
Large scale hedge fund investors are accelerating their harmful takeovers in recent years. Data from 2021 show the fastest year over year increase in hedge fund home purchases in 16 years. For example, in 2021, large hedge fund investors bought 42.8 percent of homes for sale in the Atlanta metro area and 38.8 percent of homes in the Phoenix area.
To meet investor’s return expectations, hedge funds and other investors maximize profits by imposing high rent increases, inflating fees, and delaying home maintenance and improvements, which diminishes the quality of housing over time.
A 2018 study of foreclosed homes in Atlanta found that hedge funds and investors were 68 percent more likely than small landlords to file for evictions, even after controlling for property, tenant, and neighborhood characteristics.
A recent House Financial Services Committee report found that predatory hedge fund investors targeted homes in neighborhoods with significantly larger Black populations and approximately 30% more single mothers than the national average, with 12.9% of households headed by single women with children under 18.
In order to meet Americans’ housing needs and root out systemic inequities in the housing market, the End Hedge Fund Control of American Homes Act bans hedge funds and private equity investors from owning large numbers of homes by establishing a $20,000 federal tax penalty for each single family home owned by a single company and its affiliates over 100 homes. The bill allows companies with large portfolios to sell homes over several years to come into compliance so there’s an orderly exit, and includes incentives to make sure buyers of divested homes are ordinary people who will live in the home. The tax penalties collected will be used to provide down payment assistance to homebuyers.
“We support Senator Merkley’s proposal to address the impact of large investors in the housing market. Often, these firms concentrate their purchases in communities of color, limiting first-time homebuyer opportunities to families that already face discrimination in the marketplace. The transfer of the tax revenues to downpayment assistance programs further enhances the value of this bill,” said Doug Ryan Vice President, Policy & Applied Research, Prosperity Now.
“In addition to helping curb the consolidation of single family homeownership by Wall Street firms, this legislation would go a long way in helping prospective first time homeowners by providing the means for down payment assistance. Additionally, limiting concentration in rental housing will likely result in lower rent increases for tenants, which is crucial in this time of great economic uncertainty,” said Chris Noble, Esq., Senior Policy Coordinator for the Private Equity Stakeholder Project.
“Everyone deserves a safe, stable, and affordable place to call home. Private equity firms, however, have instead devised a business model that prioritizes profits over people, regardless of the economic consequences that fall on our communities. The presence of private equity firms engaging in the housing market is one of the most concerning threats to financial stability among Oregonian families, especially for renters, prospective homebuyers, and Oregonians living on low or fixed incomes. This bold piece of legislation will help change the tide of our national housing market and will protect families from predatory investment practices that contribute to our ongoing housing and affordability crises here in Oregon and in other communities across the country,” said Loren Naldoza, Legislative & Communications Manager with Neighborhood Partnerships.
Senator Merkley has kept a steady drumbeat on the need for federal action to meet the Americans’ housing needs and to root out systemic inequities in the housing market. That work has included urging the Federal Financial Institutions Examination Council to work with the housing appraisal industry to address disparities in home valuations for communities of color; and pushing Senate leaders to deliver critical housing assistance to Oregonians struggling to find shelter in the wake of last year’s catastrophic wildfires.
Final bill text can be found here.
A bill summary can be found here.