President Trump’s Executive Order to ban institutional investors from purchasing single family homes gets the equation backward. The real problem in America’s housing market may not be too many institutional investors—but too few.
In his January 21 speech in Davos, President Trump reiterated his desire to prevent these investors from competing with families for homes. It’s a response to an understandable concern about the state of the single-family housing market that he inherited. During the Biden administration, home prices went up by 34% while wages went up 20%—a large affordability gap.
Single-family rentals are not a luxury. They are essential to the affordable housing infrastructure for working families. Nearly three-quarters of low-income workers live in single-family homes, and one in four of them rent.
There are 41 million people living in single-family rental homes, though only about 4 percent of such homes are owned by institutional investors, companies owning 100 or more homes. The majority of single-family rentals are owned by mom-and-pop investors—families who buy and rent a few homes to bring in some extra income—and offer opportunities to their neighbors.
To the extent that we punish institutional investors for buying and building single-family homes, we punish the workers for whom such homes are their best option, and pressure them to live in worse neighborhoods and smaller apartments.
For the millions who can’t afford to buy due to high prices, limited supply, and high-interest rates, these rentals are often the only way to affordably live in a home with key amenities, such as enough bedrooms, a yard, or access to a decent school. The alternative for many isn’t buying a home; it’s choosing between an affordable 3-bedroom rental or a crowded and expensive 1-bedroom apartment.
In part because of where they tend to be located, single-family homes rent for about the same amount as apartments, despite having three times the bedrooms at median. They also tend to house larger households with more working adults, helping to distribute costs across multiple earners, and provide room for children. Survey data and family choices have clearly shown that families of all types prefer single-family homes.
The core problem our nation faces is that land use restrictions don’t allow the construction of enough of these homes, across a wide range of prices, to meet that demand. Institutional investors are one of the few groups bridging that gap: they offer family-sized homes in higher-opportunity neighborhoods that these renters otherwise couldn’t reach. This is especially critical for parents raising children. Many are starter homes on smaller lots that are a vital addition to the housing safety net for America’s working- and middle- class families.
Institutional investors aren’t just buyers; they are capital providers and builders. In cities that permit growth, their presence is linked to higher permitting and more family-sized homes. They also add to housing supply by rehabilitating vacant homes. Operating at scale with lower costs, enables them to rehab tired housing stock. Finally, they partner with homebuilders to create new neighborhoods of single-family rental homes. Build-to-rent has been one of the fastest growing segments of single-family new construction in recent years, and it is generally acknowledged that institutional investor capital and demand have served to increase the level of new home construction.
The Trump administration is correct to focus on our national housing affordability crisis. The United States has a real, and severe housing shortage that is pricing families out of home ownership.
The fix is easy: make it legal to build again. The focus should be on the bad actors who have created the crisis: the city governments across the country who have forbidden naturally affordable single-family homes from being built through zoning and land use restrictions.
There is a massive opportunity to build new, naturally affordable housing throughout the country. The AEI Housing Center research shows we could double new housing construction while increasing affordability through better city housing policy. While this would consist mostly of single-family owner-occupied homes, a healthy percentage would be single-family rentals owned by investors of all sizes.
More institutional investors are exactly what is needed to ease the housing shortage. Discouraging one of the few groups willing to build family housing doesn’t hurt speculators. It hurts working class renter households.
