Valuing CRE - WACO

Would a Ban on Institutional SFR Ownership Actually Improve U.S. Housing Affordability? Proposals to restrict or ban institutional investors from purchasing single family homes have reentered the public conversation. The political narrative is simple and emotionally resonant. Large investors are blamed for crowding out everyday buyers, pushing prices higher, and worsening affordability. When examined through the lens of capital flows, liquidity, and housing supply, however, the economic impact of such a policy appears far more limited than advertised. At a national level, restricting institutional ownership would likely have minimal effect on affordability and could introduce unintended distortions across adjacent housing sectors. The United States has roughly 85 million single family homes. Institutional investors own only a small fraction of that total. The two largest publicly traded single family rental platforms together control approximately 150,000 homes, representing less than two tenths of one percent of national inventory. Even when expanding the definition to include private equity platforms, pension backed vehicles, and insurance capital, institutional ownership remains concentrated in a narrow set of metropolitan areas. Outside of select Sunbelt markets such as Austin or Charlotte, institutional investors account for a minimal share of single family rental stock. Housing prices are shaped locally, not nationally. Still, national affordability outcomes cannot meaningfully change when policy targets a participant that operates at the margins of total supply. At any given time, roughly three to six million homes are listed for sale across the country. Even under an extreme assumption where all institutional owners liquidated simultaneously, those homes would represent only a modest share of available listings. Any resulting price impact would likely be temporary and geographically concentrated. In practice, even markets with higher institutional presence such as Charlotte, Phoenix, Dallas, Austin, or Tampa would likely see only modest declines, perhaps five to ten percent at most. That assumes perfect coordination and no offsetting demand, both of which are unrealistic. Housing markets function on liquidity. Buyers and sellers must be willing to transact. Capital must be available at reasonable terms. When liquidity declines, volatility increases and pricing becomes less stable. Institutional investors, regardless of public perception, provide consistent liquidity. They transact through cycles. They underwrite based on yield rather than emotion. They often absorb inventory during periods when individual buyers pull back. Restricting institutional participation does not remove capital from the system. It alters the market’s risk profile. Reduced liquidity leads to wider bid ask spreads, higher perceived risk, and a higher cost of capital for builders and developers. That higher cost does not disappear. It is ultimately passed through in the form of higher rents, higher home prices, or reduced construction activity. If institutional buyers are restricted from acquiring scattered site single family homes, capital will not sit idle. It will migrate toward structures that remain permissible and scalable. Stabilized rental portfolios become more attractive. Purpose built rental communities draw increased attention. Multifamily assets with single family characteristics absorb additional demand. This redirection of capital would likely push valuations higher in these segments. A policy designed to curb investor influence in one part of the market may unintentionally inflate prices in others. Build for rent communities are particularly well positioned in this scenario. They offer operational efficiency, regulatory clarity, and institutional scale. As competition increases, yields compress and replacement costs rise, making new housing more expensive to deliver. In this way, a ban could create a construction drag by shifting capital away from for sale housing while simultaneously increasing the cost of producing new rental supply. The most powerful force restricting housing supply today is mortgage lock in. Roughly eighty percent of homeowners hold mortgages at four percent or lower, with many locked near three percent. At current borrowing costs, selling often means doubling monthly debt service. Even households looking to downsize face higher payments. As a result, existing owners choose not to sell. This dynamic has dramatically reduced resale inventory and supported prices despite affordability challenges. Restricting institutional buyers does nothing to address this structural bottleneck. One of the most effective demand side interventions would be the widespread adoption of transferable or assumable mortgages. Allowing buyers to inherit existing low rate debt would unlock supply, improve transaction volume, and relieve pricing pressure without distorting capital flows. Rents respond to household formation, supply growth, and replacement cost. They do not decline simply because ownership changes hands. If institutional ownership is restricted while new supply remains constrained, rents are unlikely to fall. In many markets, rents could rise modestly as higher capital costs are passed through and professional operators retreat. Without a material increase in housing units, rental affordability remains challenged. A realistic forecast points to limited national impact. Certain markets with high institutional concentration may experience short term volatility, but any adjustment is likely to be measured rather than dramatic. At the same time, sectors absorbing displaced capital such as build for rent communities or stabilized rental portfolios could see upward pricing pressure. Home prices ultimately reflect supply relative to household demand. Policies that fail to materially increase supply rarely generate sustained price relief. For those building housing products, the signal is clear. Long term affordability is driven by supply creation, not ownership restrictions. New housing of all forms remains structurally undersupplied. Projects that deliver density, efficiency, and speed to market will remain advantaged. Build for rent and purpose built rental communities are likely beneficiaries of redirected capital. Development strategies should anticipate rising land values and stronger institutional exit demand in these segments. Ownership enabling products deserve renewed focus. Structures that help households access low cost debt or transition from renting to owning align more closely with the true constraints of the market. Capital efficient design will matter more than ever. Smaller units, higher density, modular construction, and flexible zoning strategies offer resilience in an environment where the cost of capital remains elevated. A ban on institutional single family home ownership may satisfy a political narrative, but it does little to address the core mechanics of housing affordability. Institutional investors own too small a share of the market to move national outcomes. Liquidity would decline. Capital would reallocate. Supply constraints would persist. Without policies that unlock mobility, expand supply, and reduce financing friction, affordability challenges will remain largely unchanged. For developers and operators, the opportunity lies not in reacting to headlines, but in building the housing the market structurally lacks. And that is exactly what we at Alpha Equity Group are doing, very carefully, while providing investors with peace of mind through downside protected investments.

Michael Fernandez featured on "Think Big with Taylor Lyles" Podcast