The Free-Market and Industry Perspective: Scapegoating Investors and the True Causes of Housing Affordability
In sharp contrast to tenant-advocacy groups and legislative proposals aimed at restricting corporate landlords, free-market scholars—such as those at the Cato Institute—and industry trade groups argue that institutional investors are being "scapegoated" for a housing affordability crisis they did not create. They assert that the primary driver of rising housing costs is a severe, systemic shortage of housing supply caused by local zoning restrictions and land-use regulations.
Groundbreaking structural economic studies from late 2025 and early 2026 largely validate the core tenets of the industry perspective, confirming that corporate landlords are not the primary cause of rising costs and that proposed bans or rent caps would be highly counterproductive, severely harming the very renters they are intended to protect.
Core Industry and Free-Market Arguments
Free-market and industry advocates advance three primary arguments:
1. The Scapegoating Argument (Scale vs. Impact)
Industry trade groups point out that institutional investors own a negligible share of the U.S. housing stock (about 3% of single-family rentals and under 2% of the total single-family stock). They argue that an actor with such a small footprint cannot possibly dictate national housing prices or rents. The real culprit is a multi-million-home supply deficit driven by:
- Restrictive local zoning and minimum lot size requirements.
- Onerous and lengthy permitting processes.
- High land, material, and labor costs.
2. The Rental Supply and Neighborhood Access Argument
Industry proponents argue that single-family rentals provide a crucial pathway for families who want to live in high-quality suburban neighborhoods with good schools and job access, but who lack the wealth or credit to secure a 20% down payment for a mortgage. Institutional capital, they argue, has modernized and professionalized a fragmented, "mom-and-pop" dominated industry, improving operating efficiencies and tenant satisfaction.
3. The Counterproductive Regulation Argument
Advocates warn that populist policy proposals—such as the "End Hedge Fund Control of American Homes Act" (which would tax large landlords $10,000/home annually to force sales) or the White House's proposed 5% rent cap—will backfire. By restricting institutional investment, these policies would choke off capital to the residential sector, shrink the supply of single-family rentals, and drive rents significantly higher.
How Recent Academic Evidence Weighs the Claims
Landmark structural equilibrium studies by Joshua Coven (2025) and Barbieri & Dobbels (2026) provide a rigorous, data-driven adjudication of these claims, validating some while qualifying others:
Where the Industry Perspective is Validated:
- Investors are Largely Scapegoats for Price and Rent Growth: Coven (2025) demonstrates that in the ZIP codes where institutional investors were most active, their entry explained only 20% of the observed price increase. The remaining 80% of price and rent appreciation was driven by broader macroeconomic forces, such as population and employment growth. Institutional operators intentionally targeted these high-demand markets (selection) rather than causally driving the price increases themselves.
- Bans and Rent Caps are Counterproductive for Renters: Both studies confirm that forcing institutional landlords to exit the market or capping their rents would severely harm renters.
- Barbieri & Dobbels (2026) show that a complete ban on institutional purchases ("2009 Ownership" counterfactual) would cause steady-state rents to rise by 2.4% to 2.6% and reduce renter welfare by $2,856 to $3,027 per year due to a 17.3% contraction in rental stock.
- Forcing institutional landlords to sell their entire portfolios to homeowners ("All Sold to Homeowners") would lower home sales prices by 5.9%, but would increase rents by 4.6% to 5.0%, destroying $5,088 per year in renter consumer surplus.
- Coven (2025) shows that a 5% corporate rent cap would reduce institutional SFR supply by 25%, leading to higher rents in high-demand areas.
Where the Industry Claims Outrun the Evidence:
- Causal Price Impacts Exist: While the industry often claims that corporate buying has zero impact on home prices, Coven (2025) and Barbieri & Dobbels (2026) causally link institutional purchases to a modest but significant increase in home sales prices (4.6% to 6.2% appreciation in active markets). This entry-level buying has reduced the number of homes available for owner-occupancy by 0.22 homes per purchase, making the "American Dream" of homeownership slightly harder to attain for prospective buyers.
- Market Power and Concentration Raise Rents: Pro-industry groups often deny that corporate landlords possess any pricing power. Barbieri & Dobbels (2026) prove that local rental concentration does allow large landlords to exploit market power via multi-product pricing, which raises rents by approximately 3.7%. However, this market power is more than offset by their operating efficiencies and the expansion of rental supply (which lowers rents by 6.1%), resulting in a net rent reduction of 2.4% to 2.6% for renters.
Direct Quotes
From Joe Gyourko's Brookings commentary (2026):
"The primary cause of America’s growing housing affordability problem is a lack of sufficient new supply of housing, single-family owner-occupied units especially. That should be the focus of government policy, and this proposal [to ban institutional purchases] fails to address that issue in a meaningful way... The country needs a healthy, balanced housing market that expands supply across both the rental and owner-occupied sectors, not policies that mostly reshuffle housing between households."
From the conclusion of the Joshua Coven (2025) paper:
"The results highlight the importance of disentangling selection from causal impact for policy, as policies designed to reduce rents by removing institutional investors would end up increasing rents by shrinking the rental supply... A large construction response and the crowding-out of small landlords proved of first-order importance in attenuating the effect of investor demand on prices and homeownership."