Wall Street landlords find wiggle room in new US housing law

A new national housing law targets Wall Street investors, but left wiggle room for institutional landlords to snap up single-family homes.

The 21st Century Road to Housing Act that went into effect Saturday ostensibly bars institutional investors, or those that own 350 or more homes, from buying single-family houses, Bloomberg reported. But there are plenty of exceptions.

Mega landlords such as Invitation Homes, Pretium and Blackstone’s Tricon Residential can still buy rental houses if they make significant renovations or give tenants a chance to buy the properties.

Institutions can also buy and sell homes to each other, or purchase properties developed exclusively for renting – a “built-to-rent” model that’s now the industry’s preferred path to growth, according to Bloomberg.

“The law doesn’t exclude institutions from the housing market,” David Howard, a lobbyist for single-family landlords, told the news outlet. “It creates guidelines, but there’s still enough room to allow institutions to remain active.”

It was President Donald Trump who rattled Wall Street when he sought to prohibit large investors from the housing market. Six months later, he’d worked out a compromise with large landlords.

But the deal, coded into law under the heading “Homes Are for People, Not Corporations,” hasn’t left the industry without a mark.

The law draws stiff penalties for investors that violate it. The legislation may also pave the way for states to pass stricter buying bans, which could further impact corporate investors, according to Bloomberg.

The smallest of the institutional investors could be especially hard hit, as they need to grow to boost their bottom lines. Some 30 firms own between 1,000 and 10,000 single-family rentals, according to SFR Analytics.

The threat of the corporate ban on single family home rentals has also cast a pall on new investment. It could take time for the market to spring back.

The bipartisan bill became law after 10 days passed without Trump signing it. While he has railed against institutional homebuyers, the president refused to endorse the law until Congress passed a more divisive bill requiring stricter voter identification.

Corporate landlords became a bipartisan target since the US foreclosure crisis, when Wall Street investors sucked up single-family homes across the nation at firesale prices.

The result, according to critics, prevented ordinary Americans from trying to buy their first homes. Cities such as Phoenix and Atlanta became attractive destinations because they offered opportunities to acquire swaths of homes at major discounts.

But the largest landlords said they represented a small slice of the number of U.S. homes, with firms owning more than 1,000 houses representing 3 percent of the single-family properties available for rent, according to a study from the Urban Institute.

After an executive order by Trump to curtail corporate home investments, such institutional purchases plunged. The bottom for the industry came in March, when the Senate passed a version of the housing bill that would have barred institutional investors from building new homes solely for rent, which drew fire from developers.

The final law threads a needle, according to Drew Flahive, president of Amherst Holdings, based in Austin, Texas, which owns about 50,000 single family homes for rent.

The new law prohibits large landlords from buying move-in ready homes on the open market, a purchase unpopular with voters, while allowing strategies such as built-to-rent, which could put a dent in a national housing shortage.

“The last thing anyone wants to do is make housing more unaffordable,” Flahive, whose company laid off more than 100 workers after the prospect of an outright ban spooked capital providers this year, told Bloomberg. It will likely take a year or two for capital providers to get comfortable with the law and commit new money acquiring rental homes, he said.

– Dana Bartholomew