Mary Tabb

Stop Predatory Investing Act (S.2224 — 118th Congress (2023-2024))

To: Chuck Schumer, Senate Majority Leader

From:  Mary Tabb, policy analyst

Date:   September 23, 2023

RE:       Stop Predatory Investing Act

Institutional Investors are capitalizing on an unstable housing market and pushing families out of their single-family homes.1 Furthermore, they are preventing first-time homebuyers from entering the market by removing affordable units from the housing stock. To curtail this growing trend, the Chair of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, Sherrod Brown (D-OH), introduced a bill on July 11, 2023, entitled “Stop Predatory Investing Act.”2 He was joined by Senator Ron Wyden (D-OR), Chair of the Senate Finance Committee, and six other Democratic Senators, including Elizabeth Warren (D-MA).3 In Essence, this bill would prevent investors who acquire 50 or more new single-family homes from “deducting interest or depreciation on those properties.”4 The hope is that limiting the financial benefits of these assets will reduce the number of single-family homes purchased by institutional investors, thereby ensuring that low- and middle-income families have access to affordable housing. Despite these goals, there is limited evidence that connects these measures with a significant decrease in predatory investments.

In 1991, individual property owners (sole proprietors) owned over 90 percent of rental properties and 77 percent of the units.5 In contrast to today, individual investors own only 70 percent of rental properties and not even 40 percent of the share of rental units.6 Individual homeowners still own the majority of 1 to 4 unit properties, estimates suggest this number may continue to shrink as large investors purchase more single-family homes.7

In this context, institutional investors are most often limited liability companies (LLCs), limited liability partnerships (LLPs), and real estate investment trusts (REITs) with large portfolios of properties.8 They also concentrate their investments regionally along the Sun Belt as well as in non-white, low-income, and disinvested neighborhoods.9

The impacts of institutional investors are threefold. First, for renters, these investors allow the property to deteriorate, can raise rents, tear down buildings, resell them, and displace residents who cannot afford to relocate elsewhere. Second, for low- and middle-income families looking to buy their first home, institutional investors pose tough competition.10 These investors often focus on smaller homes, can pay cash for the property as is, and frequently can make offers before the home even becomes available in the open market. These same investors can then resell the property for a profit, increasing the value of the home and neighborhood. Finally, institutional investors play a significant role in gentrifying communities by targeting specific neighborhoods “where gentrification or real estate cycle dynamics predict medium-term price increases.”11 Once a neighborhood has become gentrified, it is difficult, if not impossible, to revert it back to the hands of its previous residents.

One proposed solution to this growing problem is the “Stop Predatory Investing Act,”12 which seeks to amend the Internal Revenue Service code to place a cap on financial benefits institutional investors can receive. Specifically, the act prohibits an investor “who acquires 50 or more new single-family rental homes … from deducting interest or depreciation on those properties.”13 Additionally, the bill states these changes will “support affordable rental housing and the construction of new housing supply by allowing owners to continue to take deductions on properties that are financed using Low-Income Housing Tax Credits or that are newly constructed for rental…[and] protect renters who live in existing single-family rental housing by not disallowing deductions for single-family rental homes purchased before enactment.”14

This bill is only one aspect of the growing housing crisis and attempts to argue that it will play an essential role in curtailing institutional investors. That said, I find limited research to suggest that 50 properties is an appropriate cutoff for beginning to limit these deductions or that adding these measures will effectively address the country’s housing shortage. Much of the literature on this topic suggests other methods of oversight, such as ensuring that bulk housing sales via Government-sponsored enterprises (GSE) prioritize individual homeowners rather than investors. While institutional investors are a problem, a more robust solution likely lies elsewhere.15

Given these hesitations, I recommend not supporting this bill until more evidence can be gathered to demonstrate how the proposed measures will effectively address the current crisis. The Stop Predatory Investment Act aims to restore property ownership to our citizens, but fails to provide sufficient evidence to demonstrate that its proposal will effectively address this need. Without this evidence or bipartisan support, this bill should not be pursued further.

Sources

  1. Brunner, Laura N., “‘The Rent Eats First’: How Renters and Communities Are Impacted by Today’s Housing Market,” August 2, 2022. https://www.banking.senate.gov/imo/media/doc/Brunner%20Testimony%208-2-222.pdf.
    ↩︎
  2. Senator Brown, Wyden, Smith, Reed, Merkley, Fetterman, Warren, and Baldwin. Stop Predatory Investing Act, Pub. L. No. MCG23407 8KJ (2023). https://www.banking.senate.gov/imo/media/doc/stop_predatory_investing_act_one_pager.pdf. ↩︎
  3. United States Senate Committee on Banking, Housing, and Urban Affairs. “Brown, Colleagues Introduce Bill to Crack Down on Big Corporate Investors That Buy Up Local Homes, Drive Up Housing Prices,” Press Release. July 11, 2023. https://www.banking.senate.gov/newsroom/majority/brown-colleagues-introduce-bill-crack-down-big-corporate-investors-buy-up-local-homes-drive-housing-prices. ↩︎
  4. Senator Brown, et. al. Stop Predatory Investing Act. ↩︎
  5. “Statistical Brief: Who Owns the Nation’s Rental Properties?” United States Census Bureau, March 1996. https://www.census.gov/library/publications/1996/demo/sb96-01.html. ↩︎
  6. “Ownership of the U.S. Rental Housing Stock by Investor Type: In Brief.” CRS Report. Congressional Research Service, December 13, 2022. https://sgp.fas.org/crs/misc/R47332.pdf. ↩︎
  7. Ibid. ↩︎
  8. Office of Policy Developement and Research. “Institutional Investors Outbid Individual Homebuyers,” Winter 2023. https://www.huduser.gov/portal/periodicals/em/winter23/highlight1.html. ↩︎
  9. Ibid. ↩︎
  10. Goodman, Laurie, and Edward Golding. “Institutional Investors Have a Comparative Advantage in Purchasing Homes That Need Repair.” Urban Institute, October 20, 2021. https://www.urban.org/urban-wire/institutional-investors-have-comparative-advantage-purchasing-homes-need-repair. ↩︎
  11. Senator Brown, et. al. Stop Predatory Investing Act. ↩︎
  12. Ibid. ↩︎
  13. Ibid. ↩︎
  14. Ibid. ↩︎
  15. Dowdall, Emily, Ira Goldstein, Bruce Katz, and Benjamin Preis. “Investor Home Purchases and the Rising Threat to Owners and Renters: Tales from 3 Cities.” Reinvestment Fund and Drexil University, September 2022. https://drexel.edu/~/media/Files/nowak-lab/220923_InvestorHomePurchases_Final.ashx?la=en. ↩︎

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