‘chilling Effect’: The Housing Shortage Could Have A Money Problem

Congress wants to solve a national housing shortage. It might be making the problem worse.

Bipartisan Senate legislation with White House backing would require mega-landlords like Wall Street firms to sell their properties after several years — one of multiple ways that lawmakers are attempting to put more housing units on the market for American families.

But now, people in the housing industry are warning that language in the legislation — which is mired in a standoff between the House and Senate — has already frozen new investments for homes that are built with the intention of being rented out. The worry: Whoever owns the housing could be stuck with properties destined to lose money.

“There’s been a chilling effect,” said Adrianne Todman, former acting secretary of the Department of Housing and Urban Development in the Biden administration who now serves as CEO of the National Rental Home Council. “Capital is now, while interested, on the sidelines, waiting to see what will happen next.”

That capital freeze could worsen an estimated U.S. housing shortage of several million homes that has spurred rare broad support for legislation intended to address the problem ahead of midterm elections, where affordability and housing are central concerns to voters.

Build-to-rent homes have accounted for more than 7 percent of single-family home starts in recent years, and about 100,000 new home starts per year could be impacted if such projects are halted, according to Census data analyzed by the National Association of Home Builders and the National Association of Realtors.

The housing legislation that has these long-term rental homes hanging in the balance has been held up over differing views between the House and the Senate on how to tackle the supply issue. Each chamber has its own version of a housing bill with plenty of similarities.

For now, the two are at a standstill over multiple pieces of the package, including whether to modify the provision that would ban large institutional investors from buying new single-family homes and would require them to sell build-to-rent properties after seven years. Many House Republicans oppose those measures.

Spokespeople for the lawmakers spearheading the housing bill, Senate Banking Chair Tim Scott (R-S.C.) and Sen. Elizabeth Warren (D-Mass.), declined to comment for this article.

But defenders of the crackdown on institutional investors say the housing industry needs to show quantitative evidence that divestment after seven years wouldn’t work.

Banking Committee staff reached out to the industry during negotiations and were told that build-to-rent units are typically sold within the seven-to-10-year time frame, said an aide involved in negotiations, granted anonymity to discuss private conversations.

“They have not come forward with their math at any point in this process to show, ‘OK, it doesn’t pencil out at seven years,’” said Laurel Kilgour, research manager at the American Economic Liberties Project. “What if we say eight years? What if we say 10 years? What if we say 15 years? They never came back and said, ‘No, this is how many years.’”

Earlier last month, Scott told reporters that he didn’t “have a dog in this fight” but that his goal was to “make this provision as impactful as necessary to pass the legislation” because it’s a priority of President Donald Trump.

Trump has been clear that if Congress wants him to sign a housing bill, some sort of provision limiting Wall Street’s role in single-family housing must be included. However, the Senate’s bill, which overwhelmingly passed the chamber with 89 yes votes, is more restrictive than the policy from the White House.

“The President will not stop fighting until the American Dream of homeownership is within reach for every American, and he continues to sign bold new executive orders and calls on Congress to pass further legislation,” White House spokesperson Davis Ingle said in a statement. “The Trump Administration will never stop working to streamline regulations and expand housing affordability for all Americans.”

In the meantime, money for new build-to-rent projects, especially for single-family homes, has already been on pause for weeks, people in the industry say.

“Capital hates uncertainty,” said Richard Ross, CEO of Quinn Residences, a major developer of newly built single-family rental communities. “If this seven-year disposal [requirement] is left in there, people can’t underwrite a proper exit.”

Sen. Bernie Moreno (R-Ohio), who’s been a proponent of limiting institutional investors’ ownership of housing, said in an interview last month that he wants to ensure houses are available for young people.

“What we don’t want to do is create a perpetual scenario where you replace homeownership with renting,” Moreno said.

But those funding these types of housing projects don’t want to be stuck with hundreds of homes that must be sold years later, when there is no guarantee of what the economy will look like and no guarantee that someone will be interested in purchasing the home.

One major capital provider, granted anonymity to speak candidly, said the provision would put an unnatural timeline on build-to-rent projects. And if the measure were to pass, there will be negative consequences and capital would be less inclined to be involved in this sector of the housing industry, the person said.

“Nobody’s going to follow through on those deals until they have the certainty,” said Sharon Wilson Géno, president of the National Multifamily Housing Council. “Markets need certainty, and even if the bill passes as is, you're going to have continued uncertainty” because Treasury will then have the authority to flesh out how the bill will be enforced.

The provision, intended to limit the role of corporations in housing, would also impact investors with 350 or more single-family homes like pension funds, LLCs, investment funds and other profit-making entities.

Those paying to build these rental homes fear losing money if the projects become less lucrative, and they’re forced to sell.

It’s also sparked pushback from advocates for more affordable housing.

Paring back the role of large institutional investors “impacts the entire ecosystem” of housing that’s built-to-rent, said Mike Kingsella, CEO of Up for Growth, an organization focused on policy-driven solutions to affordability and the housing shortage.

“On one hand, you’re creating more unaffordability in the market,” Kingsella said. “Overall, you’re going to have more people that require affordable housing, but you’re not scaling the resources to build more affordable housing meaningfully, so it’s a net negative.”

He also warned that the requirement to sell off homes after seven years could result in forced evictions, especially for those living in affordable housing, and possibly including those on federal housing choice vouchers, if they are unable to purchase the rental home.

“That will include not just people who rent ordinary homes, but people who are Section 8 voucher holders, who are reliant on a supply of good-quality homes that are eligible for the Section 8 voucher, and these people are going to be thrown out of their house,” Kingsella said.

Meanwhile, there’s no certainty about what interest rates will look like, which impacts the down payments that individual homebuyers are able to afford, said Ed Brady, president and CEO of the Home Builders Institute.

“As you get closer to those seven years, there is a potential that people who are renters are treated with evictions that are uncontrollable, because that’s the rule, that’s the law,” Brady said. “If you have to sell, you want a homebuyer to buy it, and that renter can’t buy it, they’re out.”