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Hedge fund ownership of single-family homes really kicked up a notch after the 2008 financial crisis, which led to a huge surge in home foreclosures because homeowners were unable to meet their mortgage obligations.

This fresh inventory of foreclosed homes presented investment opportunities for various entities, including hedge funds, who were able to leverage their financial resources to buy foreclosed homes in bulk. Rather than selling those properties, many investors chose to enter the rental market — providing a vital service at the time, when many families were facing credit challenges.

These acquisitions helped to stabilize the housing market after a period of great distress. But some argue this had long-term consequences.

The lawmakers who introduced the “End Hedge Fund Control of American Homes Act of 2023” believe hedge funds have become greedy over time — “imposing high rent increases, inflating fees, and delaying home maintenance and improvements” with the sole purpose of “maximizing profits” for investors.

They also argue that ordinary Americans have been priced out of home ownership and investors are creating "a generation of lifelong renters."

Rep. Nikema Williams (D-GA), who co-sponsored the bill, explained why at a hearing of the U.S. House Committee on Financial Services: “If dwindling inventories of affordable housing weren’t enough, too many families in my district and across the country are facing outside competition from massive investment firms. When they think they are ready to make the leap to buying a home, they’re cut off at their ankles by investment firms. Families are being outbid by investment firms who are buying up single family homes at astonishing rates.”

Through the bill, the lawmakers would require hedge funds to sell at least 10% of the total number of single-family homes they currently own over a 10-year period — and after that phase-out, they would introduce a total ban on ownership.

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Are hedge funds really the problem?

Institutional investors, like hedge funds, do have a big interest in the single-family rental market. According to MetLife Investment Management (MIM) research cited by Yardi Matrix, they owned around 700,000 single-family rentals in 2022 — about 5% of the 14 million single-family rentals nationally.

Similarly, The Urban Institute estimated the total institutional ownership share of single-family rentals in 2022 was 3.8% with large investors alone accounting for roughly 574,000 homes.

While that may not sound significant, these figures are expected to surge in coming years. MetLife Investment Management (MIM) predicts institutions will own more than 40% of all single-family rentals by 2030.

Industry advocates have argued that investors don’t control enough of the market to affect prices.

"These accusations make little sense given the scale of the industry relative to the housing market and the long-term housing supply shortage that is the main cause of the spike in housing prices," said Paul Fiorilla, Director of Research at Yardi Matrix.

Here are some other major factors contributing to America’s housing affordability crisis:

Wage stagnation

House prices have skyrocketed in the last 50 years, but wages for many Americans have not kept pace. Smith alluded to this unfortunate phenomenon when introducing the bill: “In 1971, my father was able to buy the house I grew up in for $15,000 on the salary he earned as a baggage handler at SeaTac Airport. That same house would cost nearly $500,000 today yet wages for workers like my father have not kept up.”

Insufficient housing supply

Home prices surged during the COVID-19 pandemic, when record-low mortgage rates, accommodative monetary policy and new remote working trends caused the demand for homes to spike.

At the same time, the supply of new housing dropped due to pandemic-related disruptions to supply chains and industry labor pools — and the material and labor that was available shot up in price, making it more expensive to build new homes.

This has contributed to a housing shortage of between 5.5 and 6.8 million units, according to the National Association of Realtors (NAR).

Mortgage rates

The Federal Reserve has hiked interest rates 11 times since March 2022 to try and get the nation’s post-pandemic inflation under control.

This has resulted in much higher borrowing costs on many consumer loans, like mortgages, causing challenges for Americans who are trying to buy their first home.

Regulatory barriers

Local and state regulations — including zoning laws and building codes — have also played a role in the U.S. housing shortage by driving up the cost of construction and limiting the supply of affordable housing.

One example is minimum lot sizes and setback requirements, which can increase the cost of land and reduce the number of housing units that can be built on a section of land.

So, while investor activity has driven up prices in the housing market, it is one of many complex challenges hurting American house hunters — each of which may need their own regulatory intervention in order to fix the overall problem of housing affordability.

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About the Author

Bethan Moorcraft

Bethan Moorcraft

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Bethan Moorcraft is a reporter for Moneywise with experience in news editing and business reporting across international markets.

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