Is Trump’s Pledge to Rein in Private Equity for Real?

While Donald Trump has often derided the political focus on affordability – even calling it a “con job” — his administration has been trying to capitalize on the theme, most recently by announcing a plan to bar institutional investors from owning single family homes. This is an unusual policy for a Republican administration – especially one that has been so closely tied to an industry that it now says it wants to constrain. While it is unclear how much the Trump administration intends to follow through on this plan, there is some merit to their argument – which borrows from policies mostly championed by progressive Democrats.

The administration unveiled the executive order on January 20: “To preserve the supply of single-family homes for American families and increase the paths to homeownership, it is the policy of my Administration that large institutional investors should not buy single-family homes that could otherwise be purchased by families.” The order went on to recommend that agencies “review acquisitions by large investors for anti-competitive practices and prioritize enforcement against certain of those practices by institutional investors in the single-family home rental market.”

The White House’s interest in this issue prompted some leading Democrats to wonder where they’ve been all along. Party leaders have introduced numerous bills to rein in private equity’s presence in the housing market. Shortly after Trump previewed his executive order, Rep. Ro Khanna (D-Calif.) reintroduced his Stop Wall Street Landlords Act. (Trump’s executive order, it is worth noting, bears a similar title: “Stopping Wall Street From Competing With Main Street Homebuyers.”) And several advocacy groups have supported the Homes Over Private Equity (HOPE) for Homeownership Act, which was introduced last year, which seeks to strip large investors of certain tax breaks and require them to sell off the single-family homes they have already purchased.

Indeed, much of the critical reaction to Trump’s plan seemed to be rooted in the idea that he was borrowing bad ideas from the left. As one New York Times columnist noted, this would appear to be a move “pulled from the policy playbook of the progressives he loves to hate.” A Washington Post editorial derided what has been “a liberal dream” as “populist claptrap.”

Is Private Equity Ownership Even a Problem?

There is litlte doubt that instituational investors are a real presence in the housing market. As Americans for Financial Reform’s Caroline Nagy pointed out at a recent House Subcommittee hearing, prior to 2011 there was no single investor that owned more than 1,000 single-family homes; by 2021, 32 of these companies owned 446,000 homes. And institutional investors bought three of every 10 single-family homes in the first half of last year. Their ability to pay cash is just one way they have a distinct advantage over other homebuyers.

But those who doubt that private equity plays a harmful role in the housing market argue that the large investors like Blackstone and Starwood do not actually own that many homes. National estimates vary – from less than 1 percent to around 3 percent. While there are differing definitions of what makes an institutional inventor, the argument boils down to whether owning a relatively small slice of the overall housing market can have much of an impact. This same argument has been made about private equity’s role in the health care system: If they own a relatively small number of hospitals, can it really be so bad? In that case, there is abundant evidence that the effects have been disastrous for those most directly affected.

The problem is that looking at the national housing market obscures the role of private equity investors on the local markets where they are more active. Josh Higham and Hal Singer argue that investors are selectively acquiring properties in neighborhoods to maximize their pricing power. This purchasing strategy, sometimes called “rentlining,” entails buying homes that are most likely to permit rent extraction from tenants who lack options. Measuring investor ownership using the nationwide housing stock as the denominator artificially deflates the true investor share of the markets in which they operate.

When they looked at the neighborhood level in the Atlanta market, they found particular areas where investor owners were more concentrated than in the city as a whole – gobbling up a larger share of the owner-occupied and non- owner-occupied homes. The authors note that there are numerous studies that show a connection between ownership concentration and increased rents.

A recent report from the Private Equity Stakeholder Project looked at how Blackstone has operated in parts of California, which built on the company’s strategy of buying up foreclosed properties in the wake of the financial crisis. Other investigations have similarly zeroed in on local impacts on markets, like a recent Columbus Dispatch report, “When Wall Street is Your Landlord.”

It is too early to say what impact Trump’s executive order might wind up having – especially given the administration’s lack of focus on core affordability issues in general. And it is worth noting that the White House has not demonstrated any broader interest in reining in private equity’s power, either in the housing market or anywhere else. Indeed, Trump’s appointee to lead the Federal Housing Finance Agency Bill Pulte, was a private equity CEO whose family business is heavily invested in real estate. Pulte’s tenure at FHFA thus far has been marked by a series of moves to undo fair lending rules and other consumer protections, along with dramatic job cuts within the agency. At the same time, the Trump-era Internal Revenue Service has abandoned plans to properly audit private equity and real estate investment firms.

Nonetheless, the executive order is intended to piece together a “legislative recommendation,” which would presumably leave the matter to Congress. Several Republicans have signaled they would support a bill, and as Senator Elizabeth Warren (D-Mass.) remarked, “Let’s make it happen legislatively,” she said. “Put your money where your mouth is, Mr. President.”

This first appeared on CEPR.

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