The Free-Market and Industry Perspective: Scapegoating Investors and the True Causes of Housing Affordability

The Free-Market and Industry Perspective: Scapegoating Investors and the True Causes of Housing Affordability

In sharp contrast to tenant-advocacy groups and initial legislative proposals aimed at restricting corporate landlords, free-market scholars—such as those at the Cato Institute—and industry trade groups like the National Rental Home Council (NRHC) argue that blaming institutional investors for housing unaffordability is a major "red herring" that distracts from the true cause: a severe, government-created shortage of housing supply.

Following the enactment of the Federal Legislative Actions Restricting Institutional SFR Purchases: The 21st Century ROAD to Housing Act Enacted on July 11, 2026, free-market and industry stakeholders have articulated a clear response to the new federal framework, praising the removal of key restrictions while raising ongoing concerns about the core purchase ban.

The True Drivers of Unaffordability: Supply Barriers, Not Wall Street

The core of the free-market perspective is that institutional investors are too small to dictate housing costs. Cato scholars and the NRHC emphasize that large operators (with portfolios of 350+ homes) own less than 1% of the single-family housing stock in America, as detailed in Institutional SFR Ownership and Market Share: National Footprint vs. Local Geographic Concentration. In a June 2026 op-ed highlighted by the NRHC, researchers argued:

"Viral claims about institutional homeownership are not only overblown – they’re factually wrong... pointing the finger at institutional housing investors as the source of the housing crisis is a red herring."

The true drivers of housing unaffordability, free-market scholars argue, are localized regulatory barriers to new construction. These include:

• Restrictive Zoning: Local land-use regulations, minimum lot sizes, and single-family zoning mandates that prevent housing supply from growing to meet demand.
• Regulatory Red Tape: High permitting fees, lengthy environmental reviews, and local opposition ("NIMBYism") that drive up construction costs and delay projects.
• Macroeconomic Factors: High mortgage interest rates and rising labor and material costs that make housing development more expensive.

Industry Reaction to the Final Congressional Compromise

Industry groups like the NRHC and the National Association of Home Builders (NAHB) intensively lobbied Congress to modify the Senate's initial version of the 21st Century ROAD to Housing Act, which had included a 7-year forced disposal requirement on build-to-rent (BTR) developments. They warned that forcing operators to sell off BTR assets within seven years would severely disrupt the sector, dry up capital, and slash housing production by nearly 40,000 units per year.

Following the House's intervention in May 2026 to eliminate the forced disposal requirement, Cato scholar Thomas Berry noted:

"While cutting the seven-year sell requirement is a big improvement, it remains unclear whether it will survive a House-Senate conference."

When the final enacted law preserved the elimination of the 7-year disposal mandate, industry groups expressed relief.¹ The National Rental Home Council and other real estate groups officially endorsed the final bipartisan bill, noting that it successfully protected the BTR sector and preserved the ability of homebuilders to sell inventory to institutional partners. This compromise allows BTR developers and operators to continue executing their "buy, build, and operate" strategies without a government-mandated exit clock.

Ongoing Criticisms of the Core Open-Market Purchase Ban

Despite supporting the final bill's supply-side reforms and the BTR protection, free-market scholars remain critical of the core ban on large institutional investors purchasing existing single-family homes on the open market. Cato scholars argue that:

1. Property Rights Infringement: Restricting who can buy a home weakens property rights and artificially limits a seller's exit options, potentially hurting individual homeowners looking to sell.
2. Harm to Renters: Preventing institutional capital from purchasing and upgrading older, existing homes reduces the supply of high-quality, professionally managed rental housing. As synthesized in Academic Evidence on the Causal Impact of Institutional Landlords on House Prices and Rents, academic evidence shows that institutional entry actually leads to a modest decline in local rents.² Banning these purchases will likely put upward pressure on rents, hurting lower-income families who cannot afford to buy.
3. Bureaucratic Burden: Creating a massive new federal regulatory apparatus at HUD to track, monitor, and fine covered institutional operators is an inefficient use of government resources that does nothing to build a single new home.

Ultimately, the free-market and industry perspective holds that housing policy should focus on easing regulatory barriers to construction to let the market build more homes of all types—both for sale and for rent—rather than using institutional investors as political scapegoats.