Kicking Hedge Funds out of the House?
As an answer to lowering home prices and putting more houses back on the market, a group of federal lawmakers is introducing a bill that would force hedge funds to sell off their housing stock.
U.S. Representative Adam Smith of Washington and U.S. Senator Jeff Merkley of Oregon — both Democrats — recently introduced the End Hedge Fund Control of American Homes Act of 2023, which would force hedge funds to sell off stock they have in single-family homes over a 10-year period. After that, they are banned from purchasing any more houses.
Under the bill, any hedge fund that owns a home must sell 10% of its stock to families each year for the next 10 years. After 10 years, all hedge funds will be banned from owning single-family homes. Further, any hedge fund that plans to purchase a home will be subject to a 50% tax on the fair market value of the home. All tax revenue will be used for a down payment program for families seeking to buy houses from the hedge funds.
Both Smith and Merkley cited data from the Urban Institute that, since June 2022, approximately 574,000 single-family homes are owned by hedge funds and institutional investors. In the first three months of this year, hedge funds bought 27% of these homes. They also said that these hedge funds purchase their homes in predominantly Black neighborhoods and areas with high concentrations of single parents, according to the House Financial Services Committee report. Other studies showed that hedge funds are 68% more likely than small landlords to file for evictions, impose higher rents, and allow the houses to fall into disrepair in order to maximize profits.
In a statement, Smith said, “Congress must take action to crack down on corporate greed and get hedge funds out of the single-family home market. The bill I’m introducing […] with my colleagues would ban these problematic hedge funds from the single-family housing market and claw back some of the homes they already own so that more American families have a fair shot at becoming homeowners.”
“The housing in our neighborhoods should be homes for people, not profit centers for Wall Street,” Merkley added. “Yet, in every corner of the country, giant financial corporations are buying up housing and driving up both rents and home prices.”
However, not all agree with this concept. The Atlantic said that hedge funds and other institutional investors are being cast as the “villain” and the “scapegoat” in this housing crisis. Kevin “Mr. Wonderful” O’Leary of the TV Show Shark Tank told Fox Business the bill is “very bad and very destructive,” adding, “Very bad idea. Very bad policy when you try to manipulate markets or sources of capital.” He urged Smith and Merkley to “stay out of the markets” and “[l]et the markets be the markets.”
