The “End Hedge Fund Control of American Homes Act”
New Legislation Targets SFR Owners
By David Howard
In December, Senator Jeff Merkley (D-OR) and Representative Adam Smith (D-WA9) introduced the End Hedge Fund Control of American Homes Act, a bill targeting the legitimate development, investment, and ownership activities of America’s leading providers and builders of professionally-managed single-family rental homes and communities.
By forcing any entity owning $50 million or more of single-family rental home assets to sell all properties over a 10-year period, this legislation will:
» reduce the availability of safe, quality, affordably priced housing for hundreds of thousands of renter households nationwide;
» prevent middle-class families from renting housing located in neighborhoods near quality schools, employment centers, and transportation corridors;
» disincentivize the building and development of new units of much-needed rental housing;
» stifle innovation and entrepreneurialism in America’s housing market.
A Flawed Solution
It is not hard to see the deep flaws in this bill. Besides upending America’s long commitment to the foundational principle of the right to own property, anyone who knows anything about housing surely knows the country is facing a crisis of underbuilding that has resulted in a supply deficit of between four and six million homes. And this bill makes that crisis worse.
At a time when housing affordability and supply are at historic lows, we need serious policy solutions and proposals to address this long-standing, and continuing problem. We also know that government policies alone will not solve this crisis. We need to spur the production of all types of housing — owner-occupied and rental – by enabling more private market investment, innovation, and expertise. The Merkley/Smith bill will only limit the availability of affordably priced single-family rental housing, ensuring sought-after neighborhoods remain off limits to families for no other reason than they choose to rent.
In their support of the bill, Sen. Merkley and Rep. Smith rely on out of context and unsubstantiated claims about the single-family rental home market and the role of housing providers within that market.
First, it is blatantly inaccurate to refer to the vast majority of single-family rental home providers as “hedge funds.” They are not. The market is comprised of a wide diversity of owners and builders, including publicly traded companies, family businesses, and most significantly, individuals. Many of these owners and builders are integral parts of local housing ecosystems that make neighborhoods better places. In a study of rental housing providers published in December 2018, Fannie Mae reported “institutional investors” own just 1% of the single-family rental homes in the United States, compared to “small” and “very small” investors who own 95%.
Second, the bill defines “hedge funds” as any entity with $50 million or more of assets. According to the National Association of Realtors, the median price of an existing home in the United States is $391,800. This means, anyone owning just 128 median-priced homes would be forced out of business by this bill.
Third, the implication that single-family rental home providers — of any size — have an ability to “control” housing markets is completely unfounded. A “fact sheet” for the bill states large providers own 574,000 homes, without providing any context for understanding the impact on America’s housing market. The 574,000 homes owned by large providers represent less than 0.4% of the 145 million housing units in the country. This means, more than 99.6% of the housing in the United States is owned by someone other than the housing providers targeted by the Merkley/Smith bill. As for the country’s rental housing market, large providers of single-family rental homes own just 1.3% of the 44 million units.
Fourth, the claim that providers of single-family rental homes are somehow negatively impacting homeownership is not supported by an extensive collection of data, most notably, the Census Bureau’s reporting of the U.S. national homeownership rate, which is higher today (66%) than five years ago (64.4%). Additionally, Census Bureau data show the amount of owner-occupied housing in the U.S. has increased by more than 10% (nearly 8 million units) over the last five years, while the amount of rental housing has increased by just 2.6% (1.1 million units).
In a report published in July 2023, the Census Bureau revealed homeownership rates had increased across all U.S. regions and among all racial/ethnic groups between the years 2019 and 2022. For local context, homeownership rates are also higher today than five years ago in the home states of both Sen. Merkley (OR) and Rep. Smith (WA), and in each state’s largest MSAs (Portland and Seattle).Lastly, an NRHC report published in February 2023 showed the share of the single-family home market accounted for by rental homes has fallen 1.4% over the last decade.
Americans Need More Options — Not Fewer
The simple fact is, America needs more housing — of all kinds, owner-occupied and rental — to meet the needs of both homeowners and renters. With decades-high mortgage rates and rising home prices, Americans need more options to access quality, affordably-priced housing, not fewer.
Research from housing industry consultant, John Burns Research & Consulting has shown the monthly cost of renting a single-family home is $1,000 less than the monthly cost of ownership. For many families, the monthly savings of renting a single-family home has a meaningful impact on a range of quality-of-life issues and provides for opportunities to live in neighborhoods and communities that otherwise might not be available.
Providers of single-family rental homes are working diligently to address the supply challenges confronting today’s housing market. Over the past year, NRHC members have invested over $2 billion in home upgrades, renovations, and rehabilitations. Providers are investing in communities and neighborhoods and will continue to enhance and expand the diversity of housing opportunities available for families considering the advantages of leasing a single-family home.
The bottom line is this: working families deserve access to great homes in great neighborhoods. No matter where Americans are in life, they should have a range of options to meet their individual housing circumstances. This is what the Merkley/Smith bill’s flawed targeting of the single-family residential market misses — housing is a continuum, and single-family rental homes occupy an important place in that continuum. They are a solution to many families’ financial challenges, and often unlock opportunity — access to quality schools in quality neighborhoods — for those who need it.
Housing, put simply, should not be viewed as zero sum. We need more supply, of all types, to help ensure we meet the housing needs of today and tomorrow. And single-family rental homes are an important component for working families in any housing market.
So, what can you do?
First, all of us in the SFR business — owners, operators, builders, service providers, business partners — need to be more effective advocates for ourselves and for the industry. When the media and policymakers get it wrong, whether in the local news or at city council meetings, we need to correct them.
Single-family rental housing has been an integral part of the American housing ecosystem for decades, and the reach of the industry is vast. I am always in awe by the many hands raised when I give a talk about the industry and ask how many in the audience own (or have owned) a single-family rental home or have rented a single-family home. This is an industry with wide recognition.
Leverage your networks. Use social media. Issue press releases. Meet with elected officials and local government administrators. We need to be the ones who stand up for ourselves.
Second, consider joining with NRHC in our efforts to advance the interests of the industry and push back on harmful legislation and regulation. As the trade association representing the single-family rental home industry, we work on your behalf. But to be effective, we need your support. We need everyone with a stake in this business, regardless of whether you own one property or 1,000; whether you are a small, local builder or a production builder; whether you are a contractor, manufacturer or service provider; we need you to be a part of NRHC.
The only way the industry is going to be successful preserving, protecting, and enhancing the business of single-family rentals is with your help.
I encourage you to visit the NRHC website, rentalhomecouncil.org, click on the “Membership” tab, and show your support by joining today.
