The Bill to Boot Hedge Funds is Back

Democratic lawmakers Jeff Markley and Adam Smith have reintroduced their legislation that would curb institutional investment in the single-family housing market. Is it de-ja-vu? A bit. But this time, they have several co-sponsors.

Their bill, the “HOPE for Homeownership Act,” would set a new tax penalty of 15 percent of the sale price or $10,000, whichever is greater, for hedge funds that purchase single-family homes to use as rentals. HOPE stands for Humans Over Private Equity.

The measure would also remove tax breaks for mortgage interest and depreciation from investors, and impose a new $5,000 per house tax on funds that fail to sell off 10 percent of their SFR portfolios each year over a 10-year period. Moreover, holdings must be sold to families who don’t own another property.

Addressing a housing shortage

Not everyone agrees that the legislation is the best step forward. The National Rental Home Council, the trade group which represents big-time investors in the housing sector, remains steadfast in its claim that supply is the problem.

“It has nothing to do with who owns houses,” David Howard, CEO, National Rental Home Council, told Multi-Housing News. “We have to make housing more affordable. That’s what our group is trying to do.”

In their synopsis of their legislation, Sen. Merkley, Ore., and Rep. Smith, Wash., conceded that a housing shortage exists—others sources say there is a shortfall of at least three million newly built homes—and that it will take years to remedy. But they also noted that the affordability crisis that keeps many would-be buyers on the sidelines can be addressed more immediately. It includes reigning in hedge funds that control large portions of the market.

“American families should not have to compete with multi-billion-dollar corporations when looking for a home to buy or rent,” the lawmakers said in prepared remarks.

Noting that some forecasters are predicting that corporate investors will own 40 percent of all single-family rentals by 2030, they maintain that large-scale entities are “taking over the housing market at an alarming, accelerating rate.”

“Houses should be homes for families, not profit centers,” Sen. Merkley said. “Let’s kick hedge funds to the curb to restore the dream of home ownership, one of the foundations that working people need to thrive.”

Disagreements between parties

Besides Sen. Merkley and Rep. Smith, the bill is co-sponsored by Democratic Sens. Ruben Gallego and Mark Kelly of Arizona and Chris Van Hollen from Maryland. Also signed onto the measure are independent Sens. Bernie Sanders, Vt., and Angus King from Maine. The only co-sponsor in the House is Calif. Rep. Linda Sanchez. All of these legislators are considered to be progressive.

As of now, the bill has no Republican co-sponsors. Yet, the measure has the backing of several organizations, including the National Consumer Law Center on behalf of its low-income clients, National Housing Law Project, Americans for Financial Reform, Consumer Action and the Private Equity Stakeholder Project.

“Private equity firms and other corporate landlords, flush with cash, have unfair advantages over first-time home buyers who are struggling with sky-high home purchase prices and high interest rates,” said Caroline Nagy, associate director of housing, Americans for Financial Reform.

Citing a House Financial Services Committee report, the sponsors also noted that institutional investors “disproportionately target” minority families and vulnerable single parents by acquiring in locations where they more primarily reside.

Other studies show that large-scale landlords are 68 percent more likely to file for evictions than Mom-and-Pop landlords, and that they impose high inflated fees while failing to keep their properties up to minimum living standards, all in an attempt to max out their profits.

But Howard said that the firms he represents give people a choice: “People have to be given the option of where and how they want to live.”