Banning Institutional Investors in Housing: A Populist Fix for a Supply-Side Crisis

The debate over banning large institutional investors from purchasing single-family homes has gained traction in political and media circles, framed as a populist solution to the housing affordability crisis. However, a closer examination of market fundamentals reveals that such policies are unlikely to address the root causes of unaffordability and could inadvertently exacerbate existing challenges. Institutional investors, while often vilified, represent a small fraction of the residential real estate market and are not the primary drivers of supply constraints. Instead, policymakers and investors should prioritize supply-driven reforms to address the systemic under-building and regulatory barriers that have plagued the housing market for decades.

Market Share and Geographic Focus: A Small but Strategic Player

Institutional investors accounted for less than 2.5% of all investor-owned home purchases in the U.S. during Q2 2025, with large institutional players (holding 1,000+ properties) representing just 2% of the total market according to BatchData. Small-scale individual investors, defined as those owning one to ten properties, dominated 91% of the investor-owned home market. This stark contrast underscores the limited role of institutional investors in residential real estate transactions.

Geographically, institutional investors have increasingly focused on Sunbelt states like Texas, Florida, and Arizona, where demand for single-family rental homes is growing due to affordability challenges and lifestyle preferences. These investors often target lower-cost properties, with an average purchase price of $280,000 in 2024-well below the national average of $512,800. By mid-2025, institutional investors had also become net sellers for six consecutive quarters, shifting capital toward build-to-rent (BTR) developments. This strategic reallocation reflects their role as capital allocators rather than long-term housing stock holders.

Build-to-Rent and Affordability: A Mixed Impact

The rise of BTR projects in Sunbelt markets has had a mixed impact on housing affordability. Initially, oversupply of new BTR and multifamily units led to declining rents in cities like Austin and Pensacola, Florida, where asking rents fell by as much as 3.9% year-over-year. However, by mid-2025, markets such as Tampa-St. Petersburg and Houston began to see rent growth of 1% year-over-year, driven by moderation in new supply and robust job growth.

While BTR developments have contributed to short-term affordability pressures in some regions, they also align with shifting demographics and rising demand for single-family-style living with amenities. Developers are increasingly designing BTR communities to prioritize flexibility and wellness, addressing evolving renter preferences. The long-term success of BTR in enhancing affordability will depend on balancing supply with demand, particularly in secondary and tertiary Sunbelt cities where affordability remains strong.

Expert Critiques: Why Bans Are Misguided

Critics of populist bans on institutional investors argue that such policies ignore the broader supply-side challenges driving housing unaffordability. According to a report by Affinity Group Mortgage, institutional investors own only 0.73% to 2% of the single-family housing stock, making them a minor factor in the affordability crisis. Furthermore, banning these investors could reduce overall housing supply, as they often serve as reliable buyers for new home developments. If construction companies lose this buyer base, they may scale back production, exacerbating existing shortages.

Experts also highlight that institutional investors play a role in improving housing quality and expanding rental options, particularly in high-growth areas. Their ability to modernize homes or convert single-family units into multifamily housing is critical for increasing affordability. Removing them from the market could lead to fewer quality rental homes, higher rents, and an influx of amateur landlords who lack the resources to maintain properties effectively.

The Path Forward: Supply-Driven Solutions

The U.S. housing market has under-built homes for over a decade, and the affordability crisis is the result of a complex interplay of factors, including rising construction costs, regulatory barriers, and population growth. Rather than targeting institutional investors, policymakers should focus on increasing housing supply through reforms such as:- Zoning reforms to allow for more flexible and efficient development, including multifamily housing in single-family zones.- Streamlining permitting processes to reduce construction delays and costs.- Incentivizing new construction through tax credits or subsidies for developers in underserved markets.

Investors, too, should prioritize long-term strategies that align with these reforms. For example, capital allocated to BTR projects in Sunbelt markets with strong absorption rates could generate stable returns while addressing regional housing needs.

Conclusion

Banning institutional investors from purchasing single-family homes is a speculative policy shift that fails to address the systemic underpinnings of the housing affordability crisis. While these investors have a small market share and are strategically reallocating capital to BTR developments, the real challenge lies in the U.S.'s chronic under-building and regulatory inertia. By focusing on supply-driven reforms and leveraging the strengths of both institutional and individual investors, policymakers and market participants can create a more equitable and sustainable housing market.