President Trump to the Left of Governor Newsom on House Buying
President Trump’s recent Truth Social missive about housing fits the mold of many of his others to date: he identifies an issue (that may or may not be important, and summarizes it in a way that may or may not be accurate) and then blames a boogeyman before he suggests a terrible way to eradicate the boogeyman.
He seems concerned about housing scarcity. So are many people, me included. But then he hops-skips-and-jumps right to denouncing “large institutional investors” and proposing to ban them from purchasing single-family homes in the United States in the future. Then he promises both congressional action and more policy proposals at a speech in Davos in two weeks.
Has Trump found a real bogeyman? Institutional investors make up a very small fraction of the housing market. Furthermore, institutional owners do not have a negative impact on rent or housing prices—or the opposite might actually be true. These are all crucial considerations. But, never mind, they say. Look at the bogeyman!
Interestingly, within a day of Trump’s diatribe, the Democratic governor of California, Gavin Newsom, proposed a similar thing … and it seems less draconian than Trump’s.
Newsom didn’t propose a complete ban, and even if he did, it would obviously only apply to California. He said he wanted to make it “harder” for them. Based on prior bills introduced in the state legislature on the topic in prior years, remedies could include caps on bulk purchases by investors, higher taxes on those buyers, giving the right of first refusal to tenants in buildings being sold to investors, and the power to local governments to ban transactions altogether if and only if the city or town meets a definition of “extreme” housing shortage.
Trump and Newsom both overstate the threat of the bogeyman. And make no mistake, all of their proposed strategies are terrible and would do virtually nothing to create more housing stock or change the trajectory of housing prices in a positive direction, and would introduce unnecessary distortions into the housing market. But Newsom’s proposal is marginally less terrible than Trump’s nationwide ban. The sheer scope of a federal ban is always going to be worse than the states trying various flavors of bad. In such a scenario, states might also stumble upon something good, too. Federalism is pretty great.
The federal government really shouldn’t be in the business of telling current homeowners who they can and cannot sell their homes to. (Or any other product for that matter, regardless of the nationality or corporate status of the buyer.) A ban on investor homebuying may not have much of an impact now, but when mortgage rates go down or the economy dips, there may be much bigger unintended consequences. Sure, you might finally be free of cold-call solicitations to buy your house now, but what happens in the future when you actually want to get those calls?
It’s possible that the details and substance of what the White House proposes to Congress on this issue are short of an outright ban and much different than Trump’s proclamation. That has certainly happened before. From the look of things at the moment, however, it seems that the proponents of the horseshoe theory of politics have another datapoint in their favor.