Now that the federal government is signaling that its newly signed homeowner protection bill won’t be as prohibitive as its earlier incarnation, institutional real estate managers active in the sector are expressing relief — particularly towards the allowances for new building and renovation projects.
The 21st Century ROAD to Housing Act, which was passed in July and goes into effect in January, prevents institutional buyers that own 350 single-family homes from buying more. In proposing standards, definitions, and safe harbors for the exceptions that Congress already wrote into the law, the federal government has recently proposed a rule clarifying exceptions for build-to-rent (BTR) and renovate-to-rent (RTR) projects, lease-to-own programs, and certain debt, servicing, and investor-to-investor transactions.
While remaining skeptical of the efficacy of the bill, managers have expressed approval that the Treasury made it explicit that build-to-rent homes are exempt. Separately, some managers are relieved that a requirement that build-to-rent homes be sold after seven years, a provision in the bill that the Senate passed in March, has been nixed.
“Treasury’s proposed exemptions preserve opportunities for institutional capital to add to and improve the housing stock, particularly with build-to-rent and renovation,” said Peter Zabierek, senior portfolio manager at Easterly Ranger. But he said the law will ultimately limit investors’ ability to acquire existing homes.
“Congress ultimately recognized that BTR adds supply and that new construction should be protected,” Peter Ciganik, head of capital markets at Brightshore Capital, wrote in an email to Institutional Investor. “March was a warning: capital froze on a provision that never became law. Policy uncertainty is itself a constraint on supply.”
The legislation was aimed at implementing President Trump’s earlier executive order to lower housing costs and expand supply by “streamlining regulations, modernizing finance options, and promoting innovative construction methods.” This includes banning institutions from competing with individuals in buying homes.
But real estate managers disagree that institutional investors have been responsible for driving up prices. “Pensions, endowments, and other long-term investors fund housing and restricting that passive capital would shrink supply and raise costs,” said Amherst Group President Drew Flahive, adding that while the Treasury’s proposal is constructive, he still sees more work to do.
Though Easterly’s Zabierek acknowledged that “large institutional investors were competing with families trying to buy homes, particularly first-time buyers,” he contends it was confined to a small number of neighborhoods and attracted a disproportionate number of media and political attention.
“The U.S. simply hasn’t built enough housing over the past few decades,” Zabierek said. “We need to be careful that, in trying to make homeownership more affordable, we don’t discourage the very capital that could help address our housing shortage.”
