COMMENTARY: Institutional investors not driving housing crisis

According to recent data from Redfin, rent prices are stabilizing. Despite this positive development, housing costs remain a prime concern, leading some experts to look for solutions to address shortages, such as suggestions to build housing on public land. However, such proposals are likely temporary distractions from the often-villainized group of institutional investors.

Unfortunately for consumers, such a focus distracts from genuine solutions, as institutional investors aren’t driving the housing crisis.

Housing accessibility and affordability look different today than they did in previous generations. Over the past decade, median rents have risen, especially in dense urban areas. Despite these increases, renting affordability still outpaces home ownership.

As more Americans forego homeownership for financial reasons, lawmakers have been looking for someone to blame. Increasingly, they’ve landed on institutional investors.

This year, the Federal Trade Commission sought public comment on the effect of “mega” single-family rental investors — companies that own more than 1,000 rental homes. While landlords and large corporations make appealing scapegoats, often, the easiest target isn’t the right one.

Early evidence suggests that institutional investors are responding to consumer demand and helping stabilize a tough housing market.

There’s no question that institutional investors are reshaping parts of the market. Research from the Philadelphia Federal Reserve found that they were responsible for much of the decline in homeownership rates. A study from NYU’s Stern School of Business found that institutional investors could drive up home prices and reduce the availability of homes for purchase.

In the rental market, which includes an increasing number of Americans, the effects are often positive. The Philadelphia Fed found that institutional investors reduced unemployment by boosting construction labor demand and lowering vacancy rates. The NYU researcher found that investors expanded the rental supply and, crucially, helped reduce rental prices.

While homeowners still make up two-thirds of U.S. households, renters tend to have lower incomes and less budget flexibility and are an important group to support. For them, institutional investors’ role in keeping rents in check is a welcome relief.

Rather than targeting investors, lawmakers should tackle the drivers of high housing costs, which affect owners and renters alike.

Research from Colorado’s Leeds School of Business found that residential zoning affects the housing market. Specifically, minimum lot size requirements raise costs. Zoning rules, such as these, distort the market and cause a mismatch of supply and demand that leads to higher costs. Eliminating such regulations would be more effective than pitting owners and renters against each other.

Millennials have been blamed for their low homeownership rates for everything from the 2008 housing crash to spending too much on avocado toast. The truth is more complex, involving economic and social factors.

What lawmakers shouldn’t do is add to the confusion by blaming the housing investors providing needed rental options for a growing population. Instead, they should focus on the real barriers to affordability, such as restrictive zoning laws. Getting serious about housing costs means addressing supply, not scapegoating those responding to demand.

Tirzah Duren is the president of the American Consumer Institute. She wrote this for InsideSources.com.