Recently, U.S. Congress proposed legislation aimed at prohibiting these institutions from purchasing single-family homes, hoping to alleviate the pressure on rising housing prices. However, according to an analysis by Thomas Ryan, a real estate economist at Capital Economics, this legislation may not have a significant impact on housing prices.

In a report to clients, Ryan noted that while the buying activities of large institutions are often criticized for driving up housing prices, their actual market share in the national housing market is relatively small. He cited the latest Realtor.com® Investor Report data, which shows that as of September, large institutions owning 50 or more housing units accounted for only 13% of all investor homebuyers. This suggests that the impact of large institutions may be overstated relative to the overall market size.

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Ryan further analyzed that most investors are actually small-scale "mom-and-pop" landlords who own fewer than ten properties. This finding emphasizes the diversity and complexity of the real estate investment market, contrary to the common public perception dominated by a few large institutions.

Despite housing affordability being a national concern, particularly for first-time homebuyers, Ryan questioned in his report whether simply banning hedge funds from the market would be effective. He pointed out that even when the investor purchase rate peaked at 13.1% in February 2022, it had fallen to 10.8% by the first three quarters of 2023. This indicates that even at higher market shares, the impact of large institutions could be limited.

He also noted that with the rise in housing prices and interest rates, investor activity in the market has decreased, especially among large investors. From the beginning of 2023 to the present, large investors' share of home purchases accounted for only 15.3%, while small investors increased to 67.6%. This change in market dynamics reveals the self-regulating ability of the real estate market and how various factors collectively influence housing prices and market activity.

realtor.com

Moreover, Ryan emphasized in his report that while the southern markets, where investors concentrate their purchases, have indeed experienced significant price increases in recent years, it is more likely due to large investors choosing to invest in high-return hot markets rather than their purchasing activities driving up prices.

Although the controversy over hedge fund homebuyers is politically divisive, Ryan's analysis provides a data-based economic perspective, stressing the actual market conditions that need to be considered when formulating related policies. Whether from a free-market stance or a position supporting stricter restrictions, understanding the real impact of investor behavior on housing prices is key to crafting effective policies. Through such in-depth analysis, policymakers can better understand how market forces operate within the real estate sector, thus developing fair and effective housing market policies.