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In a recent move, Democrats in both the House and Senate have put forth a bill to limit hedge funds’ influence in the single-family housing sector. The proposed legislation, known as the End Hedge Fund Control of American Homes Act of 2023, seeks to prohibit hedge funds, defined as entities managing pooled funds from investors, from acquiring and owning single-family homes in the United States.

The bill outlines a comprehensive plan requiring hedge funds to divest all single-family homes within a 10-year timeframe. Furthermore, it aims to eventually bar such entities from possessing any single-family homes. To enforce this transition, the legislation proposes substantial tax penalties during the ten-year phaseout period. The generated revenue from these penalties would be allocated to down-payment assistance programs, facilitating individual home purchases from corporate owners.

If enacted, this legislation could potentially disrupt a growing segment of the housing market and increase the availability of single-family homes for individual buyers. As the cost of homeownership continues to rise, the bill addresses concerns that ordinary Americans face in competing with hedge funds for housing, driving up both rents and home prices.

Senator Jeff Merkley of Oregon, a co-sponsor of the bill alongside Representative Adam Smith of Washington, emphasized the urgency of addressing the housing market dynamics. Merkley remarked, “You have created a situation where ordinary Americans aren’t bidding against other families, they’re bidding against the billionaires of America for these houses.”

In a related effort, Representatives Jeff Jackson and Alma Adams of North Carolina introduced the American Neighborhoods Protection Act, which proposes an annual fee of $10,000 per home for corporate owners of more than 75 single-family homes. The collected fees would contribute to a housing trust fund designed to assist families with down payments.

However, the legislative journey may face obstacles given the divided nature of Congress. Representative Smith acknowledged the challenges but emphasized the necessity of initiating a dialogue on these critical issues.

The bills were introduced following a New York Times report that shed light on the impact of corporate-backed investment in Charlotte, N.C. Wall Street-backed investors purchased a significant portion of homes in cash, often outcompeting first-time buyers relying on mortgages. The corporate focus on modestly priced houses, particularly in neighborhoods with diverse populations, led to a surge in rentals and conversion of properties.

Wall Street’s entry into the single-family rental market dates back to the aftermath of the 2008 housing crisis, where homes in foreclosure became lucrative investments. The influence of institutional investors has steadily grown, owning 3 percent of all single-family rentals nationwide by June 2022. In more affordable markets like Charlotte, they held a substantial 20 percent market share.

Amidst the ongoing debate, David Howard, CEO of the National Rental Home Council, argued that the real issue lies in the shortage of new housing units, estimating a need for 2 to 6.5 million new units. Howard emphasized the importance of policies supporting the production, investment, and development of new housing.

While the housing market undergoes significant transformations, staying informed is crucial. Fairway Mortgage Services, as an informed professional, is dedicated to keeping individuals up to date on the ever-changing mortgage market.