If you tried to buy a house in Phoenix or Atlanta or Charlotte in the past five years and kept losing bids to buyers paying cash, some of those buyers were not families. They were investment funds. Institutional investors, meaning private equity firms, real estate investment trusts, and their subsidiaries with names that sound like local businesses, have purchased hundreds of thousands of single-family homes in the United States, concentrating in markets with strong rental demand and below-average homeownership rates.
The scale of this shift varies by market, but in specific zip codes in specific cities, the institutional ownership rate is high enough to meaningfully affect what happens to prices and rents. When a single entity owns ten percent of the rental housing in a neighborhood and uses algorithmic pricing to set rents, that entity has pricing power in that neighborhood. It is not the only landlord, but it is large enough to anchor the market.
The policy response to this has been limited and slow, partly because the activity is legal, partly because the financial industry is well-represented in the halls where responses get designed, and partly because the political framing of the issue keeps getting pulled into a culture war conversation about capitalism that obscures the specific and correctable mechanisms at work.
The specific and correctable mechanism tonight was this: tax law currently gives institutional buyers advantages over individual buyers in certain transactions, and the depreciation rules for rental property benefit large portfolios more than small ones. These are choices embedded in the tax code, not features of nature. They can be changed. Whether they get changed depends on who’s doing the asking and who’s doing the answering. Right now, the fund that owns ten percent of your block has more access to both than you do.