“Roaches check in, but they don’t check out.” That was the iconic line from the 1970s/80s Black Flag Roach Motel ads. At risk of wasting words, roaches would enter traps that they would never be able to exit…
The ad springs to mind as man bites dog, and Sen. Tim Scott (R-SC) teams up with Sen. Elizabeth Warren (D-MA) on the 21st Century ROAD to Housing Act. The bill aims to “modernize housing policy” and “boost supply” among other things. Which on its own is funny: while we have supercomputers of the iPhone and Android variety that sit in our pockets at prices that continue to drop, somehow housing requires “policy” meant to “boost supply.” For that alone, would-be homeowners should be skeptical.
In truth, they should be much more than skeptical. They should be very worried. That’s because Scott and Warren’s plan for boosting housing supply is rooted in placing restrictions on those most capable of increasing housing supply.
Getting into specifics, Scott and Warren inserted into their bill a requirement that large investors in single-family homes sell their properties to individuals within seven years of their completion. Implicit here is that institutional demand for housing is keeping prices abnormally high. What’s implied is wrongheaded.
Where the Senators miss big is that it’s potentially treacherous to increase the supply of any market good. Think back to 2008. More than a few builders were left with a lot of housing inventory, but no interested buyers.
Which is where the big institutional investors come in. Private equity giant Blackstone launched Invitation Homes in 2012, and backed it with $10 billion that was directed toward the purchase of over 50,000 houses.
That Blackstone entered a still very uncertain housing market with billions worth of buying power has logically loomed large in the expansion of housing supply since. Think the Roach Motel jingle. While no one exits the Black Flag Roach Motel, Blackstone and other institutional investors have given builders a very real and very liquid exit plan if and when they need to sell some of what they’ve built. In other words, the enormous liquidity that institutional investors like Blackstone exemplify is the instigator of much housing supply.
Sadly, Scott and Warren’s misguided 21st Century ROAD to Housing Act penalizes those same institutional investors. Eager to make sure that individuals, not investors, own housing, the Senators ignore that without institutional investors, there will be much fewer homes for individuals to rent or own. Which is quite puzzlingly the unwitting aim of Warren and Scott’s legislation.
As a Wall Street Journal report on the legislation indicates, in a “bipartisan bid to make homeownership more affordable,” Scott and Warren are “aiming to restrict the industry that builds homes to rent them.” To say that their legislation contradicts their expressed goals insults understatement.
Which is why would-be homeowners should be so worried. By removing the biggest source of liquidity in the housing market by legislative fiat, Warren and Scott are sadly rendering much riskier the provision of housing supply. That they’re also depriving individual Americans of the genius of rental options made plentiful by big institutions is another demerit in this horrid legislation, but that was the subject of recent columns and more coming soon.
