Targeting Corporate Landlords Stifles Supply and Limits Opportunity

The prevailing narrative paints corporate landlords as the primary villains in the housing affordability crisis, driving up prices and squeezing renters. However, a deeper dive into the evidence reveals a far more complex system. This conversation suggests that while corporate ownership has some drawbacks, the proposed legislative solutions may create more problems than they solve, particularly by stifling new construction and limiting access to neighborhoods with better opportunities. Those who understand these non-obvious consequences--developers, policymakers, and even potential homebuyers and renters--can navigate the housing market more effectively by focusing on supply-side solutions and the nuanced benefits of institutional rental housing, rather than falling for simplistic scapegoating.

The Unintended Consequences of Targeting Corporate Landlords

The push to restrict large institutional investors from owning single-family homes, as embodied by the 21st Century Road to Housing Act, stems from a visceral feeling of unfairness. Renters like Amanda Cantrell in Murfreesboro, Tennessee, observe entire suburbs dominated by corporate ownership, leading to concerns about future homeownership prospects. This sentiment has fueled bipartisan support for legislation aimed at curbing the influence of these entities. However, the evidence suggests that this focus might be misplaced, potentially leading to outcomes that exacerbate the very affordability issues they aim to solve.

Stephen Billings, a professor of real estate, traces the rise of corporate landlords back to the 2008 Great Recession. Foreclosed homes became attractive assets, and the steady cash flow from rents proved more lucrative than flipping. This created an industry, often packaged as investment products like Real Estate Investment Trusts (REITs), which allowed investors to participate in real estate without the direct burdens of property management. This influx of capital significantly boosted the industry. Yet, as housing prices surged in the early 2020s, politicians across the spectrum pointed fingers at institutional investors. While Billings acknowledges a "grain of truth" in that institutional investors can "drive up housing prices a little bit," he emphasizes their national share of home purchases is "tiny, less than 1%." This suggests that the perceived impact on prices is disproportionately small compared to more significant drivers like constrained construction and low interest rates. The narrative that corporate landlords are the primary culprits for unaffordability overlooks the larger systemic forces at play.

The Supply-Side Trade-Off: Chilling New Construction

One of the most significant downstream effects of restricting institutional investors is the potential to curtail new home construction, particularly purpose-built rental housing. Laurie Goodman, who leads the Housing Finance Policy Center at the Urban Institute, highlights that institutional investors often purchase homes in poorer condition and invest significantly in renovations. They possess the capacity to buy materials like paint and HVAC systems in bulk and can secure financing for renovations more readily than individual homeowners, who face a high denial rate for home improvement loans (over 40%).

Furthermore, institutional investors are not just buying existing stock; they are also building new homes specifically for rent. About 7% of houses are constructed with the explicit intention of being rented. Goodman argues that the proposed Senate bill, by forcing these investors to sell newly built homes within seven years, would effectively "throttle the entire industry of large corporate landlords in suburbia" and "stop" built-to-rent activity. This is a critical point: legislation designed to increase supply could paradoxically "cut off the activity that is designed to do exactly that." Adrian Todman, CEO of the National Rental Home Council, echoes this concern, stating that such a bill would have "a chilling effect to build these units from the get-go." The system, in this instance, is being asked to address a symptom (high prices) by removing a key component of supply expansion. The immediate consequence of this restriction is not necessarily increased affordability, but a reduction in the very homes that could alleviate scarcity.

"This is a bill designed to increase supply, and you're actually cutting off the activity that is designed to do exactly that, which doesn't make sense."

-- Laurie Goodman

The Hidden Benefits of Rental Access

Beyond new construction, institutional landlords can facilitate access to neighborhoods that might otherwise be out of reach for many families. Adrian Todman points out that rental homes offered by these entities can allow families to live in areas they could not afford to purchase in. For a first-time homebuyer, the mortgage might be manageable, but the upfront capital required for renovations and down payments on a single-family home can be prohibitive.

This access has profound, long-term implications, particularly for children. Research from Harvard economist Raj Chetty demonstrates "enormous benefits for children from low-income families who mix with families from different backgrounds." These benefits extend to improved educational and economic outcomes, with no detrimental effects on children from higher-income families. The CEO of Progress Residential, a major rental firm, himself experienced this firsthand, growing up in a neighborhood his parents could not afford to buy in, which allowed him to attend a better school. This personal narrative underscores how institutional rental housing can act as a crucial stepping stone, enabling social mobility and providing children with opportunities that might otherwise be inaccessible. The system, when viewed holistically, shows how providing rental options can unlock downstream positive effects for individuals and society.

"These are homes that the average first-time homeowner would perhaps be able to afford the mortgage but might find it difficult to also finance the upfront capital needs that the single-family home has."

-- Adrian Todman

The Nuance of Neighborhood Impact

While the benefits of increased housing supply and access are significant, Stephen Billings's research does bring to light some negative externalities. His findings indicate that when corporate landlords own a larger share of homes in a neighborhood, there's an associated increase in property crime (2%), violent crime (4%), and drug crime (7%). This is a critical second-order effect that cannot be ignored. However, even here, the picture is complex. The potential positive impacts on children from low-income families moving to better-resourced neighborhoods, as highlighted by Chetty's research, represent a substantial, albeit less directly measurable, societal benefit.

Ultimately, Billings himself agrees that the 21st Century Road to Housing Act "goes too far." He finds it "shocking" and aligns with conservatives on the need for "allowing more building of housing." This consensus, emerging from research that identifies both drawbacks and benefits, suggests that a more targeted approach--one that encourages supply and addresses specific landlord behaviors rather than broadly restricting institutional ownership--might be more effective. Even Amanda Cantrell, who initially felt a sense of unfairness, ended up renting from a corporate landlord and reported a "solid four out of five" experience, even noting her rent decreased slightly upon renewal. This anecdotal evidence, while not definitive, illustrates that not all tenant experiences with large landlords are negative, and the perceived unfairness does not always translate into a poor living situation. The system is not monolithic; individual experiences vary, and the broad-stroke legislative approach risks missing these nuances.

Key Action Items

• Advocate for zoning reform and streamlined permitting processes: Focus on enabling more diverse housing types and accelerating new construction, particularly purpose-built rental communities. (Immediate action: Engage local representatives; Long-term investment: Support organizations working on zoning reform).
• Support policies that encourage built-to-rent development: Recognize that these communities contribute to supply and can offer affordable entry points into desirable neighborhoods. (Immediate action: Educate policymakers on the supply benefits; Long-term investment: Invest in or support developers focused on this sector).
• Prioritize tenant protections that are specific and enforceable: Instead of broad bans, focus on regulations addressing specific landlord malpractices, such as unfair eviction practices or discriminatory rent increases. (Immediate action: Research and support targeted tenant protection legislation; Long-term investment: Advocate for robust enforcement mechanisms).
• Invest in research on the long-term social and economic impacts of mixed-income neighborhoods: Quantify the benefits of residential mobility for children and families to inform housing policy. (Immediate action: Fund or promote studies on residential mobility benefits; Long-term investment: Integrate findings into urban planning and housing development strategies).
• Encourage financial literacy programs for potential homebuyers and renters: Equip individuals with the knowledge to navigate the housing market, understand renovation costs, and evaluate rental options. (Immediate action: Develop or promote financial literacy workshops; Long-term investment: Integrate financial education into school curricula).
• Recognize that immediate discomfort (e.g., higher renovation costs, initial rental payments) can lead to significant long-term advantage (e.g., access to better schools, social mobility). This requires patience and a focus on durable solutions over quick fixes. (Long-term investment: Adopt a long-term perspective in personal and policy decisions, prioritizing durable benefits over immediate relief).
• Challenge the simplistic narrative of corporate landlords as the sole villains: Seek out data and expert analysis to understand the multifaceted drivers of housing affordability. (Immediate action: Critically evaluate news and policy proposals related to housing; Long-term investment: Continuously educate yourself on housing market dynamics).