Following the 2008 housing crisis, large private equity firms and hedge funds bought substantial portfolios of foreclosed homes as an investment opportunity. The federal government enabled this growth through bulk sales of federally backed mortgages and foreclosed properties. This decision excluded ordinary families, and mission- driven non-profits from buying these homes and returning them to families in need of stable housing.
Large scale hedge fund investors are accelerating their harmful takeovers in recent years. Data from 2021 show the fastest year over year increase in hedge fund home purchases in 16 years. For example, in 2021, large hedge fund investors bought 42.8 percent of homes for sale in the Atlanta metro area and 38.8 percent of homes in the Phoenix area. To meet investor’s return expectations, hedge funds and other investors maximize profits by imposing high rent increases, inflating fees, and delaying home maintenance and improvements, which diminishes the quality of housing over time.
A 2018 study of foreclosed homes in Atlanta found that hedge funds and investors were 68 percent more likely than small landlords to file for evictions, even after controlling for property, tenant, and neighbourhood characteristics. A recent House Financial Services Committee report found that predatory hedge fund investors targeted homes in neighbourhoods with significantly larger Black populations and approximately 30% more single mothers than the national average, with 12.9% of households headed by single women with children under 18.
Political Intervention
In order to meet Americans’ housing needs and root out systemic inequities in the housing market, the End Hedge Fund Control of American Homes Act bans hedge funds and private equity investors from owning large numbers of homes by establishing a $20,000 federal tax penalty for each single family home owned by a single company and its affiliates over 100 homes. The bill allows companies with large portfolios to sell homes over several years to come into compliance so there’s an orderly exit, and includes incentives to make sure buyers of divested homes are ordinary people who will live in the home. The tax penalties collected will be used to provide down payment assistance to homebuyers.
We do not know whether this potential piece of legislation will even come close to passing – although such a programme would be popular, hedge funds have excellent lobbyists – but the bill’s existence reflects the growing number of people concerned about the American housing crisis. Other countries have enacted similar legislation, and there are very few drawbacks. Critics of the bill, besides hedge funds, are those who think the bill does not go far enough. A 20,000 USD tax penalty is a slap on the wrists; though it makes mass ownership less viable, it is likely still economically viable.