Wall Street Is Not the Problem with Housing

The Senate is set to consider the ROAD to Housing Act of 2025, or as Rand Paul calls it, “Path Toward the Destruction of Property Rights Act.” The bill would limit institutional investors from buying certain single-family homes. Previously, President Trump issued an executive order to limit Wall Street from competing for homes with Main Street in the single family rental market (SFR). Institutional investors (investors with 100 or more properties) in SFRs have been unpopular for a while and have faced political opposition, particularly from the left, though now Republicans are the chief sponsors of the legislation. However, the extent of institutional investment in SFRs has been wildly exaggerated and the benefits from having them in the market are frequently ignored.

As of June 2025, only 13.4% of single-family homes were rentals. The vast majority of single-family homes are owner-occupied. In the SFR market, small and medium sized investors (investors with fewer than 100 properties) dominate, making over 90% of the investor home purchases. Only about 1% of single-family home purchases in America are made by large institutional investors. Anyone who is worried about investors in SFRs competing with families over single-family homes should be far more concerned about the much larger market presence of small or medium sized investors than large institutional investors.

There are some localities that have a high concentration of SFRs owned by institutional investors, even though they make up a small share of national SFR ownership. However, there is no relationship between the share of a city’s housing stock that is owned by institutional investors and housing prices. Atlanta also offers potential evidence that large institutional presence in the SFR market does not impact homeownership. Around 25% of Atlanta’s SFRs are owned by institutional investors, while it maintains a homeownership rate above the national average.

Large institutional investors in the SFR market are a relatively new phenomenon. Large investors entered the SFR market after the Real Estate Owned-to-Rental Initiative was put in place to sell mortgages held by Fannie Mae in the wake of the 2008 housing market crash. Homeownership rates have leveled off (65-66%) below the peak of the housing market boom (69%) but above the normal rate (63-64%) before the housing market boom.

In 2016, the number of SFRs hit its peak at 15.2 million, and at that time, there were 66.3 million owner-occupied single-family homes. In 2024, the most recent year the Census Bureau has data on, there were 14.4 million SFRs and 76.8 million owner-occupied single-family homes. The data clearly show that the number of SFRs has held relatively steady over the past decade and that the new presence of large institutional investors in SFRs has not limited the growth of owner-occupied single-family housing.

Institutional investors have played an important role in increasing or improving the supply of housing after Fannie Mae finished selling them mortgages on their balance sheet. To grow their portfolios, institutional investors now have to either build more housing or buy existing homes. The number of SFRs built in build-to rent projects has grown from less four thousand in 2015 to thirty-nine thousand in 2024. Building more housing is beneficial as it increases the supply of housing, which puts downward pressure on rental prices.

Institutional investors are still beneficial even when they buy existing houses. They typically target homes in need of repair, and spend $15,000-$30,000 renovating and improving a home after purchasing it, which is well above the $6,300 of improvements made by the typical new homeowner in the first year they own a home. Institutional investors also provide a comparative advantage in making home improvements as their expertise and scale allow them to benefit from volume discounts and maintain relationships with reliable home repair vendors.

Although institutional investors are not the problem, America’s housing market is fraught with issues. One of the biggest problems with American housing is the restriction on increasing supply. The combination of consumer protection laws like Dodd-Frank that make it more difficult to get access to credit and restrictive zoning codes make it hard to build more housing. Increasing the supply of housing is the simplest way to make housing affordable, with Austin being a clear example of this.

Lawmakers may soon be under some pressure to deregulate housing. Projections for the 2030 congressional reapportionment based on population changes show that states like California, New York, and Illinois will be losing representatives while states like Texas and Florida will be gaining seats. All but one of the states losing at least one representative are in the 20 worst states in the Cato Institute’s Land-Use Freedom Index, and all the states gaining at least one representative are in the top 30 states in the index.

Although the Trump administration claims it is trying to make it easier for people to get homes by keeping institutional investors out of the market, it is not actually clear that it wants it to be easy for people to buy a home. President Trump recently said, “I don’t want to drive housing prices down. I want to drive housing prices up for people who own their homes.” The desire for high home prices corresponds with the belief that houses are a uniquely beneficial investment or the view that money spent on rent is wasted. However, studies show that renting and making diversified investments can frequently outperform the investment gains of homeownership. President Trump is showing that he is trying to pursue two popular but mutually contradictory housing goals. He wants house prices to be low for buyers and high for sellers. This is an economic impossibility, so the Trump administration will have to choose between abundant housing and high home prices.

Institutional investors in SFRs are not demons to be exorcized from the market. They make up a very small share of the SFR market, which in turn is a small part of the single-family home market. Further, the small part they play in the housing market is positive, by increasing housing supply and quality. Americans should support housing abundance, and institutional investors play an important role in promoting that abundance.