Should governments regulate the % of investor owned residential real estate?

Multifamily housing units already owned by investors/corporations represent about 31% of all residential housing in the U.S.

Over the past decade there has been a growing trend of investor backed funds purchasing single family homes in the U.S. Some statistics I’ve seen is that in the past few years roughly 25% of all purchases of single family homes in major metropolitan areas have been by investor backed funds. This is driven by the abundance of cash held by investment funds who are continually seeking returns, and view residential real estate as a potentially lucrative asset class.

If the trend of funds buying up single family homes continues, then roughly 50% of all housing in the US will be owned by investors, instead of home owners.

Combine this investment trend, with the growing trend of existing communities limiting the growth residential developments, we will continue to see rising prices for residential homes.

My generally libertarian mindset, sees this as being bad for our society. It will continue widen the wealth gap between residents in our society. It will make it harder and harder for even middle class people to buy and own homes.

I don’t necessarily have a proposed answer, but there should be some limit in individual communities on the number of residences that can be investor owned.

The reason investors are buying up houses is that they see a good return based on restrictive zoning and other regulations making it really hard to build more houses (as you point out).

A much better solution is to make it easier to build houses. What makes it hard for middle class people to buy homes is that we don’t build enough of them.

Most markets for consumer goods work just fine because we don’t limit production. There’s no concern when, like, Hertz buys 100,000 cars to rent that they’ll crowd out middle class people from buying cars because we can just build more cars (or at least we could, back when we had microchips).

The markets that end up heavily financialized and expensive are the ones with major supply restrictions. NYC taxi medallions are a great example. 15 years ago the price of the supply-restricted token you needed to run a taxi-cab was approaching $1 million. The medallions were bought up by investor conglomerates to rent out, small-time operators had to take on loans to afford them, etc. A bad solution to this problem would have been to add more restrictions on ownership. It would have further distorted and screwed up the market (although some would have done better under such restrictions). The good solution was to just stop restricting who could transport people by hired car. Uber et al. came in and the price of a medallion plummeted.

A better approach is to remove tax advantages of real estate investing:

This is an odd thing to say in a post advocating more government regulation. It does not sound like you are a libertarian, not that there’s anything wrong with not being that.

Direct implementation of percentages does not comport well with a capitalist economy. How would you allocate properties? I agree that using tax policy to provide broad incentives/disincentives based on desired societal goals is the best way to go, then just let market forces function freely within that tax framework. You can keep on adjusting tax policy until the overall percentage target is reached.

Well, certain court decisions to the contrary, corporations are not people. A move which limits corporate freedom, but increases individual freedom, can be a net positive from certain libertarian standpoints.

And owning your own home is one of the greatest sources of freedom, real freedom, not the usual “Muh Freedums!” nonsense, that there is. A piece of land that no one can kick you off of without great effort, and which you can do with as you would, with little restrictions.

You don’t get that as a renter. Your landlord has an interest in the property that is greater than yours, and so can dictate a lot of terms to you. No Smoking. No painting the rooms purple and yellow. No knocking down the walls to make one big bedroom instead of two small ones. No pets, or only certain types of pets. They can evict you if they decide they don’t like the look of your face (“Oh, sorry, my kid needs a house/we need to renovate”). In places with poor rent control, they can jack up the price whenever they want to, so good luck planning long-term.

And if we’re not going to do that, why should the proceeds from the scam be limited to those people who are able to scrounge up enough money to buy entire houses? If we’re going to have a housing market based on blowing up home values through artificial scarcity, having a system where you can buy shares in it seems more fair than one where you can only get in on the action if mommy and daddy can lend you six figures for a down payment. Or at least not markedly less fair.

Agreed, but I would go a step beyond, and impose property taxes on them as well.

Real estate groups buying up property and renting it out is already causing severe issues with housing supply, and it will only get worse if not addressed.

Sometimes, an argument can be made that the wealthy contribute to the economy through investment, in this case, however, I don’t think there is any positive value to anyone but the stakeholders in the real estate holding group. A higher price can be a signal to suppliers to increase supply, but property is finite, and development slow to adapt to changes in demand, so in this case, high prices are just a way for the wealthy to accumulate more wealth.

They are driving up the prices, and then renting them out, meaning that someone that could have been a homebuyer and be paying a mortgage on their way to owning their home instead is paying significantly more in rent that is not going towards building equity.

Also, rent goes up, mortgages generally don’t (unless you get an ARM or something silly like that.) After 20 years of home ownership, my mortgage, including taxes and insurance, is significantly lower than a 1 bedroom apartment around here.

We have a housing crisis, and the wealthy are profiting off of it, to the detriment of the rest of society. I like the property tax idea, but I’m not wed to it. However, this is a problem that can only be solved by govt action, and I think it’d be easier to use taxes to discourage real estate hoarding than outright regulations limiting ownership.

A counterargument to that is that corporate ownership is a more efficient use of the resource.

Corporate-owned taxi medallions result in a taxi using them 24 hours a day. Corporate-owned cars are driven more miles. Corporate-owned housing houses more people.

If the problem is insufficient housing (and it is), further limiting the efficiency with which we use the housing stock we have is not going to improve things.

That argument can be made, but what is efficient use, is it housing the most people at the lowest cost, or is it making the most money off the property? I’d argue that corporate ownership leans towards the former, while the problem to be addressed requires the latter.

And required people to rent or lease them from those corporations, netting a profit for those corporations at the expense of drivers and their fairs. There is no natural limitation to the number of medallions, they were distributed based on the number of cabs that the city wanted on the streets. If they were only in use 1/3 the time, then the city would be incentivized to sell 3 times as many in order to have the number of cabs it needs to provide transportation to its populate.

Instead, since they need to be in use 24 hours a day, we have drivers forced to work third shifts for low volume fairs, as that is the only time that the medallion owned by the corporation is available to them.

Cars are one of the places where higher demand can actually increase the supply, so they are not relevant to economies where the supply is fixed.

How does that work? Is someone sleeping in the bed when I’m not using it?

While this is true, it does not follow that incentivizing more corporate ownership of property will increase that efficiency.

How does an argument about “efficiency” address an argument about “freedom”? In fact it highlights the problem. I’m free to buy the biggest house I can afford, and live in it all by myself if I want. That’s not at all “efficient”.

Contrary to that, it would be far more efficient if every house and apartment building was essentially a rooming house, with each individual room rented out to as many people as can fit in them, with shared washrooms and kitchens. We could house 10 times the population that way, while also extracting the maximum possible corporate profit.

It would also suck donkeyballs for everyone.

Efficiency is great in some cases, but not all.

I don’t get this - how does corporate ownership house more people? A particular building has the same number of units and houses the same number of people whether it I own it as an individual , my brother and I own it as partners or we form a limited liability company or corporation to own it.

Oh, man, I really thought I was exaggerating, here.

I’m just saying freedom isn’t the only thing of value at stake. I’m not saying you’re wrong about freedom, but if we are currently dealing with an undersupply of housing (we are) making the allocation of housing less efficient is going to lead to more people without housing, which is also bad.

If you consider # people housed / $ of housing capital, rental properties are going to be way more efficient than owned properties, but I think that’s mostly a statistical fluke: poorer people rent and richer people own houses. So let’s consider, say, a 3-4 bedroom suburban single family detached house that might be owned by a corporation renting it out or a family living in it.

That house is more likely to be fully occupied more of the time if it’s a rental. Transactions costs for buying and selling houses are high, so people who own the houses they live in will often do so for a long period even when it doesn’t really meet their precise needs any more, and given the life cycle of most families that often means decades of fewer people living there than otherwise would be.

Think about how lots of families buy and use houses. They buy a house in their 30s or so, raise a few kids, then when the kids move out they keep living in the house for decades. My mom still lives in the 3 bedroom house she and my dad bought when I was a kid. My dad and stepmom live in the 3 bedroom house they bought when I was an older kid. That’s 6 bedrooms for 3 people (2 of whom share a single bedroom). Do they use the extra space? I mean, sure. It’s not like they just have empty bedrooms. But if those houses were rentals, they’d be generally be rented by families with a few kids, or a handful of roommates living together. Very few single people rent 3 bedroom houses by themselves, but for various reasons, lots of single people who own 3 bedroom houses will keep living in them by themselves.

The answer to this is in zoning and building, not in raising prices so that corporations can get an extra profit off of other’s living place.

They buy them and build equity, which they can then use to help to pay for their kid’s schooling, or for their expenses in retirement.

Right, they own something. As opposed to renting something, where the rent goes up every year, and they gain no equity.

I think you kind of missed some of what I was saying- sure, it might be more efficient as a rental rather than owner-occupied but the form of ownership is not what’s important. I could own that house as an individual ( or in a partnership or LLC) and rent it out and it wouldn’t be any less efficient than if it was owned by a corporation.

I think you and I broadly agree on what should be done (build more houses), but that you really are fired up about this and want to argue with someone making points I’m not. None of the quotes you’ve responded to have anything to do with your responses when read in context, nor do I disagree with any of the points you’re making.

Yes, you could do that. But if, as is suggested in the OP, the government limits who can own houses, that will change the use of houses on the margin, not just the paperwork or legal structure. If corporations can’t buy houses and rent them out, some of those houses will be purchased by individual landlords or LLCs, which will be effectively no change to efficiency, and some will be purchased by people who will live in them, which will reduce the housing efficiency.

But, hey, people should be able to buy houses. And rent houses. And corporations should be able to too. Our housing problems are not due to ownership structures. They’re due to not enough houses. We should build more of them!

I guess I should have said, “despite having a libertarian mindset,…”

???

If corporations were building more houses and increasing the supply, that might be different, than corporations buying existing housing, establishing higher rental rates, based upon increased pricing for housing that they contributed to by buying up houses.

I responded at some length why this is true even if we assume that corporations are just buying up existing houses.