For many politicians on both the left and right, casting “Wall Street” as a villain is about as reliable as a sunset. This is no less true in housing policy, particularly as rising housing costs have led to significant home affordability challenges. Rather than grapple with the challenging nitty-gritty of zoning laws and other regulations that inflate housing costs, some have settled on a false narrative that large, faceless financial institutions are gobbling up homes and pricing ordinary Americans out of the market.
Like plenty of political rhetoric these days, this talking point doesn’t stand up to scrutiny, as my recent testimony before the Texas House of Representatives demonstrates. Housing market data shows that institutional investors comprise a small fraction of homebuyers. Further, where there is institutional investment in housing research shows that these investors have actually played a stabilizing role in housing markets, especially during economic downturns, and offer opportunities for families to access better neighborhoods and schools.
Let’s start by addressing a pervasive myth: Last year, a viral social media claim asserted that private equity firms purchased 44% of all single-family homes in America in 2023. None of this is true. In fact, institutional ownership of single-family rental (SFR) homes was just 3.8% nationwide in 2022, and large investors (those owning more than 1,000 homes) accounted for less than 2% of home purchases in any quarter.
To be sure, during the pandemic many Americans flocked to the Sunbelt states like Texas, Arizona, and Florida, and housing supply was simply unable to meet this shock of demand.. And as basic economic principles hold, when there is outsized demand for housing, prices go up. Investors were certainly among these buyers, but most such buyers were smaller to medium sized investors – including lots of mom-and-pop home flippers – not institutions or “Wall Street.” In Texas, large investors were responsible for only 4.2% of these transactions in 2022. These numbers make it clear that the footprint of institutional investors in the housing market is simply too small to materially drive housing markets.
Other research supports this conclusion. A study by economists from the University of Southern California, Arizona State University, and the Federal Reserve Bank of Philadelphia found that institutional investment does not drive up sale prices relative to list prices, which belies the notion that such investors are crowding out other purchasers.
Further, institutional investors have been found to serve as a stabilizing force in distressed housing markets, particularly during crises like the Great Recession. After the financial crisis, institutional investors played a key role in purchasing distressed properties, helping to prevent more significant declines in home prices.
Beyond stabilizing the market, institutional investment in single-family rentals can offer significant social benefits, by providing access to better housing in high-opportunity neighborhoods. Single-family rentals allow families who cannot afford to buy homes in desirable areas to rent in those same neighborhoods. This access can be transformative, especially for low-income families seeking better schools and safer environments for their children.
For example, research from the University of North Carolina and Virginia Tech found that expanding the single-family rental market gives low-income families more opportunities to access high-performing public schools. By increasing the availability of rental housing in neighborhoods with better educational resources, these families can provide their children with opportunities they might not have had otherwise. A related study found measurable improvements in educational outcomes for students who moved to better school districts through rental housing opportunities. These benefits extended across racial and socioeconomic lines, and notably, the performance of existing students in these districts was not negatively affected.
The work of Harvard Professor Raj Chetty further illustrates the importance of neighborhood choice in promoting social mobility. Chetty’s research has consistently shown that the neighborhoods in which children grow up have a significant impact on their chances of upward economic mobility. Institutional investment in single-family rentals opens the door for lower-income families to move into higher-opportunity neighborhoods, breaking the cycle of poverty and giving children a better chance to succeed.
Critics of institutional investment often overlook or totally ignore these well-documented benefits. While it is true that housing affordability remains a significant challenge in many markets, scapegoating institutional investors is a distraction or outright bad faith argument. For example, critics often assert that institutional investors are reducing the supply of housing by converting purchased homes to rentals, but then turn around and criticize investors for pricing out renters. Increasing rental supply has the exact opposite effect. The arguments these advocates invoke simply do not withstand scrutiny.
Rather than focusing on institutional investors as the cause of housing affordability issues, policymakers should direct their attention to increasing the overall supply of housing. Expanding access to affordable housing will require thoughtful policies that encourage development and investment, not knee-jerk reactions that mislead the public about an important policy challenge.
Gordon Gray leads Pinpoint Policy Institute as Executive Director
Prior to launching Pinpoint, Gordon served as the Vice President for Economic Policy at the American Action Forum, where his portfolio included the federal budget, taxes, the macroeconomic outlook, and general economic policy matters.
Gordon previously served as a senior policy advisor to Senator Rob Portman (R-Ohio), and was policy director during Senator Portman’s 2010 campaign. Before joining the campaign, he was a professional staff member for the Senate Budget Committee, and previously served as deputy director of domestic and economic policy for Senator John McCain’s 2008 presidential campaign, and spent several years with the American Enterprise Institute. Gordon is a graduate of Tufts University.
Gordon has testified as an expert witness before multiple committees in Congress on a range of domestic and economic policy areas. He has also provided commentary and analysis appearing in The Wall Street Journal, The Washington Post, and Politico, among other publications. His media appearances include Bloomberg TV, Fox News Channel, Fox Business, CNBC, NPR, and CBS Radio.