How many rental properties do you own? How many would you like to own? What if the government suddenly decided you owned too many properties and wanted to start charging you a tax for every extra one you purchased? Thoughts?
The housing market continues to slowly appreciate after one of the fastest periods of price growth in history. In December, the year-over-year Case Shiller Index was up 5.5 percent despite interest rates being at the highest levels they’ve been in years. Rents have also continued to increase.
Thus, as Americans are getting pinched it’s not surprising that Congress is trying to pass new legislation to address this issue. And it should also not be surprising that the newly proposed legislation, if passed, will make matters worse.
This legislation is aimed at stopping Wall Street from buying up Main Street. But what hedge fund owns only 15 houses? Or 100 for that matter? Instead, this law will—quite obviously—hurt small and mid-sized investors.
These investors are the ones buying and fixing up many dilapidated properties all over the country. If such investors are pushed out of buying and rehabbing properties, expect more blight. This will be especially true in more downtrodden areas where the majority of houses are owned by investors.
Not surprisingly, the law would hurt those its supposed to help.
If you really wanted to ban Wall Street from buying up single-family houses, you could just set the limit at 1000. No hedge fund would waste their time on anything less than that. But even still, the narrative that Wall Street has been driving up housing prices is clearly false. As I noted for BiggerPockets:
“In 2018, there were about 83.3 million single-family homes in the United States. As Gary Beasley notes in Forbes,
‘Researchers at my company, Roofstock, estimate that large-scale landlords today own approximately 450,000 of the roughly 20 million single-family rentals in the U.S. While this represents considerable growth over the past decade, it represents less than 2.5% of all single-family rentals and less than 0.5% of all single-family homes (including owner-occupied).’”
Regulations tend to increase prices by crimping supply. As Craig Orji notes:
“An excellent study by Gyourko gives a detailed account of how government regulations seriously constrained the housing supply. Prior to the rise of land use regulations in the 1970s, price growth in the housing market was followed by large amounts of residential constructions. In the following decades, this trend became continuously less robust as less construction followed periods of high housing price growth. Additional evidence supporting this trend can be observed in the 1980s when real construction prices, focusing solely on labor and materials costs, began to diverge from housing prices. The interpretation here is that land use regulations contribute to elevated construction costs for houses, leading to an artificial inflation of housing prices. Take, for instance, minimum lot requirements; these not only raise the expenses associated with constructing new homes but also reduce housing density.”
The only way to cool housing prices is to increase supply and/or decrease demand. Fortunately, housing construction has increased substantially of late. It would be wise to slow down immigration for at least a while. But added layers of red tape and more taxes that are in actual fact aimed at small and mid-sized investors isn’t going to help. It will do the exact opposite.
We are told by our friends at the national level that we should engage with our Legislators on issues like this, we invite you to find your Legislators in Washington and tell them what you think of this proposed legislation and let them know when there are issues around housing that you are ready, willing and able to give them valuable input on the state of Real Estate where you live and investing.
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