President Trump is correct to identify the United States’s failure to build more houses as a major contributor to our cost-of-living crisis. On his first day in office, the president signed an executive order aimed at cutting overregulation to “lower the cost of housing and expand housing supply.” That’s a political winner, and an economic—and cultural—imperative. But some on the populist edges of both major parties would prefer to focus on a familiar scapegoat: Wall Street.
It’s no secret that stubbornly high interest rates and constrained supply are making it hard to buy a home. As a new report I authored shows, that’s worrisome for those who want to see flourishing families. Research shows that eye-bleeding real estate prices can make it harder for young couples to put down roots and start having kids.
But in the rush to solve the problem, some observers would have you believe that hedge funds and other large-scale investors are to blame, buying up large tranches of single-family homes and driving up the cost for everyday Americans. The socialist magazine Jacobin recently told its readers that asset manager Blackstone owns a third of U.S. housing stock—overstating the true percentage by a factor of roughly 1,000.
Lawmakers have reacted accordingly. Democrats in Congress have introduced a slew of bills aimed at punitively taxing hedge funds and other institutions involved in the single-family housing market. Republicans have gotten in on the act, too—nine states, including Texas, Arizona, and Utah have introduced bills to block corporate ownership of single-family homes, with more on the way. Conservative leaders from the Vice President Vance to Texas governor Greg Abbott have criticized investor-owned single-family homes.
But the anti-Wall Street voices get the causality backward. Big investors buying single-family homes weren’t the cause of rising house prices and constrained supply; they were a symptom. And lawmakers’ attempt to solve a problem before understanding it could worsen the housing crunch.
As the Wall Street Journal’s reporting has shown, the share of home purchases by large-scale institutions did tick upward in the perfect storm of 2021, but since then it has stabilized and is essentially a rounding error. As my report chronicles, it was our policy choices allowing environmental and zoning regulations to curb the availability of new single-family homes that made them an appealing target for investors.
Expanding housing supply would lower rents, reducing the long-term returns to institutional investors and making homes a less enticing investment. It would also establish the conditions for a much-needed American baby boom. Research from the Federal Reserve and the University of Maryland suggests that rising home prices are associated with lower fertility among couples who don’t already own a home. House prices, mortgages, and marriage rates are also interrelated.
In an era of declining population growth, unleashing the housing market to make homes more affordable could help more couples get their feet under them, rather than delaying fertility until they reach their peak earning years.
Creative incentives could ensure family-friendly housing of all kinds. Developers seeking to build multifamily units could be given fast-pass permitting or allowed to build higher buildings in exchange for family-friendly unit design or ground-floor retail space dedicated to child care. Getting rid of minimum lot-size requirements could lead to a greater variety in housing styles, opening the door to duplexes or townhomes that give younger families stability and options.
Legislation that targets investor-owned housing stock, however, won’t address the underlying pressures driving housing costs higher. On the contrary: ample research, including from the left-leaning Urban Institute, suggests that institutional investor-owned rental housing can provide valuable options. In contrast to mom-and-pop landlords, institutions can inject new capital into neighborhoods on the margins, achieve greater economies of scale, and provide a more user-friendly experience for renters, such as reporting on-time payments to credit agencies. Lawmakers who jump too quickly to punish such scapegoats based on misunderstanding of the housing market risk reducing alternatives for families in transition or building savings for a home purchase.
Too many young adults find it hard to launch. One reason is that a down payment feels out of reach, with fewer family-sized apartments or starter homes available to young couples who don’t want to put off having kids until they can save enough to make a competitive offer. Unleashing a diversity of housing styles and finding ways to ensure family-friendly homes and apartments get designed and built will be crucial steps toward fixing our affordability crisis—and restoring the American Dream.
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