In recent years, hedge funds, private equity firms, and investment trusts have been rapidly acquiring single-family homes across the United States. This trend has sparked concerns about the displacement of homeowners and the potential long-term consequences for the housing market. In response to these worries, U.S. Senator Jeff Merkley and Washington Rep. Adam Smith have introduced a groundbreaking bill—The End Hedge Fund Control of American Homes Act—that could reshape the landscape of real estate investment.
The Essence of the Bill:
The proposed legislation, introduced in both the U.S. Senate and the U.S. House of Representatives, seeks to restrict corporate investors from dominating the single-family home market. Named the End Hedge Fund Control of American Homes Act, the bill outlines a ten-year plan that would compel hedge funds and large institutional investors to divest from single-family home ownership.
Under the proposed legislation, hedge funds and institutional investors would be mandated to sell off 10 percent of their single-family homes annually over the course of a decade. Failure to comply with these divestment requirements would lead to penalties imposed by the Internal Revenue Service.
Taxation for Non-Compliance:
The bill incorporates a taxation mechanism to ensure compliance. If large funds fail to sell off their single-family homes within the stipulated timeframe, they would face taxes amounting to 50 percent of the fair market value for each property. The generated funds from these taxes would contribute to a housing trust fund, emphasizing the bill’s focus on supporting affordable housing initiatives.
Congressional Support and Advocacy Groups:
The proposed legislation has garnered support from both the U.S. House of Representatives and the Senate, with co-sponsorship from Representatives Nikema Williams and Linda Sánchez, as well as Senator Tina Smith. Advocacy groups, including the Private Equity Stakeholder Project, Consumer Action, and the National Consumer Law Center, have also voiced their support for the bill.
Defining and Penalizing Hedge Funds:
The bill precisely defines hedge funds as partnerships, corporations, or real estate investment trusts with net values or assets exceeding $50 million. Exemptions are granted for nonprofits and companies primarily focused on construction. Hedge funds failing to report single-family home purchases face fines, with penalties contributing to a housing down payment trust fund.
Rising Concerns and Urgency:
Merkley and Smith reference data from an Urban Institute report, revealing a significant spike in corporate ownership of single-family homes—from none owning over 1,000 homes in 2011 to hedge funds and institutional investors collectively owning 574,000 homes by June 2022. The lawmakers stress the urgency of preventing private equity firms from creating a generation of lifelong renters and call for swift Congressional action.
The Impact of Institutional Investors:
The practice of institutional investors acquiring single-family homes has intensified since the beginning of the pandemic. In 2022, 28 percent of all homes sold went to institutional investors, according to Pew Charitable Trust. Notably, the trend extends beyond single-family homes, with institutional investors also targeting multifamily apartments.
As the proposed legislation gains traction, it marks a crucial step towards addressing the concerns surrounding the corporate takeover of American homes. The End Hedge Fund Control of American Homes Act aims to promote access to safe, affordable housing and homeownership for American families, emphasizing the need to curb the influence of Wall Street in the real estate market. As the debate unfolds, the outcome of this legislative effort could significantly impact the future landscape of housing in the United States.