HB 1732 & SB 5496: Limiting Investors to 25 Homes
In December 2023, Senator Jeff Merkley of Oregon and Representative Adam Smith of Washington introduced a bill to the 118th Congress titled the "End Hedge Fund Control of American Homes Act.” The bill would have required all hedge funds to sell 10% of their single-family home portfolio each year, and then at the end of ten years be banned from owning single-family homes at all.
For most Americans, the trend of homes changing hands from individual homeowners to hedge funds and institutional investors since the Recession may have gone unnoticed. When the housing bubble of 2006/2007 crashed, in large part due to investors who took on too much risk, the foreclosed homes auctioned at the courthouse steps were often picked up by institutional investors. In the span of one year, Invitation homes alone picked up approximately 24,000 single-family homes. In the years following, they became the largest institutional investor by 2017, and their current portfolio hovers around 80,000 homes. American Homes 4 Rent, another large investor, owns over 50,000 homes across 22 states. Looking at institutional investors on the whole, the data is alarming:
“Large scale hedge fund investors are taking over the housing market at an alarming and accelerating rate. In 2011, no single entity owned over 1,000 single-family rental units. As of June 2022, the Urban Institute estimates that large hedge funds and other institutional investors owned roughly 574,000 single-family homes. Data from the first three months of 2023 shows this trend continuing, with hedge funds purchasing 27 percent of single-family homes.”
As a percentage of total single-family homes in America (.7% of the 82m homes) it doesn’t sound like a lot, but to the 574,000 households who miss out on the equity, wealth and stability-building benefits of homeownership it means the world. The lingering question has been, in a country where homes are in limited supply (and not enough to meet the current demand) how many homes is too many for one entity to hold?
State Representative Brianna Thomas (D, 34th District) and Senator Emily Alvarado (D, 34th District) have introduced HB 1732 and SB 5496, respectively, which mirror the intentions of the “End Hedge Fund Control of Housing” bill introduced at the national level just over a year prior. Their answer, however, to the question of “how many homes is too many?” is 25.
These two bills would limit homeownership of any one entity to 25 homes in Washington State, with some exemptions (non-profits, infill developers, and those making alterations to bring the home up to building code, most notably). The bill also does not require that anyone whose portfolio exceeds 25 homes currently sell off the homes or face tax penalties, as the Hedge Fund Housing bill did. Where the data on hedge fund housing is easy enough to find (small number of funds with large portfolios) the data on the number of entities with ownership interest in 25+ single-family homes within Washington would be much harder. Investors often hold ownership interest in something other than their own names (an LLC, trust, etc.), and many don’t have a reporting requirement.
What this bill doesn’t include in the details are likely to make it ineffective, at best. Building codes are updated every few years, and there have been substantial changes in areas such as window egress and energy efficiency since many of Washington’s homes were built. So, it is not unlikely that this would provide a large loophole for investors willing to make modifications and who desire to exceed the cap of 25 homes. The bill requires that investors get building permits within five years, but there is no requirement that they sell off the homes at any point. As long as they keep buying homes that don’t conform to current codes, as the text currently reads, they can keep buying homes.
The same logic follows with infill housing. Seattle developers figured out years ago that the most effective investment strategy was adding ADUs and DADUs to existing lots. The code allows a carve-out for this as well, which does create more housing and density, but also doesn’t prevent existing single-family dwellings from being purchased by investors and removed from the market long-term.
If the exemption for substantial upgrades for code were to be removed, investors flipping houses would be limited to 25 at a time - just under one house every two weeks on a rolling schedule. With the number of investors currently competing in the housing market, a house that would have been the 26th for one investor may instead be the 4th, 14th or 24th for another. The impacts are uncertain, but the intention of the bill is clear - homeownership should be prioritized for people who are going to live in the homes.
The bill is scheduled for hearing on Wednesday, February 5. You can submit written testimony or testify via Zoom to let your Washington State legislature know how you feel about this bill.
