Will Trump’s Residential Investment Ban Really Make Housing More Affordable?

In a Truth Social post, US president Donald Trump says he’s “immediately taking steps to ban large institutional investors from buying more single-family homes,” and will call on Congress to legislate those steps. He promises more details in his coming address to the World Economic Forum.

Absent those details, it’s impossible to know if his proposal will make it past the courts, or whether Congress is likely to buy in.

But of course the biggest question is whether banning home purchases by the likes of Blackstone, American Homes 4 Rent, and Invitation Homes would truly make housing more affordable for Americans.

Short answer: It wouldn’t.

Why?

A lot of the negative response from economists (some of them admittedly affiliated with those institutional investors or related businesses) centers around the fact that large investors — those who own more than 100 homes — own only 2% of US housing inventory. The proposed ban just wouldn’t have much of an effect because that sector just isn’t very big.

Another piece of the consensus response is that institutional investors are better equipped to manage RENTAL property efficiently and uniformly on a large scale. No matter what the market in buying houses does, there will always be people with good reason to rent rather than buy — they expect to move in the near future, they haven’t yet socked away enough for a down payment, etc. Fewer homes available to rent means higher rents and thus less affordable housing.

For me, a lot of the problem comes down to what economists call “time preference,” though.

People with “high time preference” want the benefit of their work or investment quickly, even if that benefit may be smaller than they’d get from waiting.

People with “low time preference” are willing to wait.

In the housing market, contractors might be said to have “high time preference.” When they build a house, they want to sell that house (ideally, have already sold it prior to building it), bank the profits, and move on to the next house.

Institutional investors have deeper pockets, other profit centers, and an eye on long-term profit — “low time preference.” They can afford to pay the “high time preference” contractor to build 100 houses and not worry about going broke waiting on those houses to sell or rent out.

So, what happens when the institutional investors get shut out of the single-family residence market? Contractors have to either build “on spec” and hope the homes sell, or take single jobs versus large-scale projects, charging a higher price per home because they don’t enjoy economy of scale savings from ordering enough material for 100 homes at a time.

When government shoves its nose into markets, the supposed beneficiaries usually end up losing. Politically connected businesses pocket more money. Government bureaucrats enjoy more power. Everyone else pays through the nose. Politicians’ assertions of contrary motivation just add insult to injury.

To figure out who benefits from Trump’s proposal,  note that it targets SINGLE-family residences.

Institutional investors in MULTI-family residences would enjoy a windfall as shortages of single-family homes pushed disappointed home buyers and desperate tenants into apartments — and drove up rents to boot.

I can’t help but notice that one large institutional investor in multi-family residences — boasting “some of the most coveted residential properties in the world” — is called The Trump Organization. Go figure.

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