The “Populist” Crusade to Make the Suburbs More Segregated and Expensive

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Last week, Congress’s upper chamber passed the ROAD to Housing Act — a bill that would, among other things, erode regulatory obstacles to homebuilding and encourage investment in affordable housing. The bill’s Democratic co-sponsor, Elizabeth Warren, deserves credit for advancing these worthy causes.

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The provision in question would all-but prohibit new institutional investment in single-family homes, including “build-to-rent” properties that would not exist in the absence of such investment.

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Large financial firms have long owned and rented out apartments. But they didn’t enter the single-family market in a big way until after the 2008 housing crisis. Since then, the share of American houses held by mega-landlords has steadily risen.

This development triggered a populist backlash. In recent years, prominent Democrats like Warren — and Republicans like JD Vance — have accused Wall Street of pricing ordinary Americans out of the single-family housing market by outbidding them with superior cash offers.

Such allegations are wildly overstated. As of 2022, institutional investors owned only 0.55 percent of single-family homes in the United States. And they have never accounted for more than 4 percent of annual home sales in America (and that includes sales of multifamily homes, which large investors are more likely to purchase).

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Corporations do not buy houses to burn them down, but rather, to rent them out. Thus, whenever institutional investment subtracts a home from the buyers’ market, it generally adds one to the rental market. Partly for this reason, corporate investment in single-family homes tends to reduce rents.

In this way, institutional investment in existing homes presents a trade-off: It makes rental housing marginally more affordable, while pushing home prices marginally higher. If one’s primary concern is minimizing the number of Americans who cannot afford housing, this is a decent swap: Americans who can’t qualify for a mortgage are more likely to be cost-burdened than prospective homebuyers.

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From a progressive vantage point, corporations buying up houses has one other positive side effect: It reduces socioeconomic segregation.

Many of America’s middle-class suburbs are zoned exclusively for single-family homes. In the past, this has effectively barred working-class households with poor credit or modest incomes from living in such places.

As Wall Street began buying and renting out houses, however, affluent suburbs became more accessible to less-privileged families. A recent paper from Federal Reserve economist Konhee Chang found that institutional investment in suburbs in the South reduced segregation by allowing lower-income renters to move to neighborhoods where they couldn’t afford to buy.

This is likely part of why corporate investment in single-family homes has proven so controversial. On the face of it, it’s hard to see why it would be fine for large investors to own and rent out apartments — but an outrage for them to own and rent out houses. One of the few distinctions between these two practices, however, is that the latter often brings renters into an area where they were previously absent.

And many suburban homeowners view working-class neighbors as a nuisance. In Chang’s study, when institutional landlords made an area more accessible to low-income renters, nearby homeowners became more likely to move away.

Even in sympathetic coverage of the anti-institutional investment backlash, resentment of integration often bubbles up. In a 2023 report about a “leafy” Charlotte, North Carolina, neighborhood where Wall Street had purchased many houses, the New York Times noted, “On a neighborhood Facebook group, renters are blamed for trash and furniture left on the curb, loud music and domestic disputes. Members fret that home values might fall.”

While class integration may generate such tensions, it can also make a big difference in the lives of disadvantaged kids. According to research from Harvard University’s Raj Chetty, children who move from high-poverty areas to affluent ones become more likely to attend college and earn middle-class incomes as adults.

Thus, the Senate’s revolt against Wall Street investors may unintentionally help upper middle-class homeowners hoard resources and opportunity, under the cover of anti-corporate populism.

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But the Senate bill doesn’t just bar large investors from buying existing properties — it also all but bans them from financing the construction of new rental houses.

Under the bill, if institutional investors bankroll a “build-to-rent” single-family housing development, they must sell all of its homes to individual buyers within seven years of construction. This will make almost all such developments financially nonviable: If investors can only collect rents on a housing project for seven years — and must then immediately sell, even if the market is bad — then they would probably be better off putting their capital into something else.

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