In his record-breaking State of the Union speech, President Trump renewed his attack on institutional investors who buy private homes and blamed them for the housing shortage. This is one of the few areas where MAGA populists agree with the left. Congressional Democrats have introduced legislation to limit institutional investors' ability to claim tax deductions for housing purchases.
The idea that institutional investors’ purchases of single-family homes are depriving middle and working class Americans of access to affordable housing is a good talking point that plays into the anti-big business sentiments of the populist left—and many elements of the populist right. However, the truth is that private housing investors are part of the market’s solution to a problem caused by government.
Institutional investors do not buy homes to let them sit idle or flip them. Institutional investors buy single family homes to rent them to families. This gives families—who cannot afford to buy a more expensive home in a desirable location—the opportunity to move to a better neighborhood.
Renting makes sense for many families since the annual cost of home ownership is 40% more than the annual cost of renting. Renting also makes sense because the median down payment on a house (as of June 2025) is a whopping $67,500. Renting a home from an institutional investor usually means living in a house that has recently been upgraded in order to increase the appeal to potential renters.
The ability to rent a home allows families not just to move into a nicer house in a better neighborhood—but to move closer to more and better job opportunities and higher quality schools. Tom Mayock, a researcher at Virginia Tech University, found that an increase in single family rental homes means an increase in children from low-income families attending a high-performing school. This means those children have a better chance of becoming successful adults. More evidence of the importance of rental housing in increasing opportunity comes from three studies conducted by economist Raj Chetty, who found that moving into a good neighborhood with good schools has a long-term positive effect on children. Yet, President Trump and the so-called populists of the left and right want to shut off this avenue for upward mobility in the mistaken belief that this will somehow make housing more affordable.
Another flaw in the populist argument is the claim that large institutional investors are buying up much of the nation’s housing stock. In fact, according to an American Enterprise Institute report, “the market share of institutional investors is less than 1% nationally, with 22 counties (0.7% of counties) having a percentage as high as 5-10%.” An analysis by Batch Data found that the majority of investor-owned homes were purchased by small mom-and-pop investors. Batch Data found that instead of buying up existing homes, institutional investors are using their resources to build new rental homes, thus increasing the nation’s housing stock rather than competing with traditional homebuyers for existing inventory
Rather than imposing new government restrictions on private companies that are helping to solve the housing shortage, government officials should be focusing on increasing home construction. This is the key to making new homes affordable. Construction of new homes declined following the 2008 collapse of the housing market and has yet to recover.
Increasing the housing supply is the key to bringing down prices, and the key to increasing the housing supply is increasing investment in new homes. The way to do this is to repeal regulations and taxes that discourage investment in home building. For example, rental prices in Austin, Texas fell by 22% after the city reduced regulations. This is because after the regulations were reduced, the amount of rental units completed in the city in 2023 and 2024 increased over 14%. In contrast to Austin, the European city of Rotterdam banned large housing investors. The result was significantly inflated rental prices due to “a reduction in rental housing supply.”
Anyone who understands basic economic principles should not be surprised that Austin’s approach of regulatory reform to increase housing supply lowered prices—while Rotterdam’s strategy of banning potential suppliers of housing failed. Therefore, those serious about lowering housing costs should focus on removing government-imposed barriers to building homes. This can unite MAGA populists, libertarians, and abundance liberals in a coalition to make the American dream of homeownership a reality for millions of American families.
