Merkley introduces legislation to ban hedge fund ownership of residential housing

As our nation continues to face a crisis of housing
affordability, Oregon’s U.S. Senator Jeff Merkley introduced the End Hedge Fund
Control of American Homes Act, a piece of legislation aimed at ending Wall
Street ownership of residential housing. While aspects of the housing crisis-
including a supply shortage-will take years to remedy, others can be addressed
immediately, including a ban on hedge funds and private equity firms owning and
controlling large parts of the American housing market, and in turn dedicate
revenue from this bill for down payment assistance to homebuyers.

“Everyone should have a safe, affordable place to call
home,” said Senator Merkley. “In every corner of the country, giant
financial corporations are buying up housing and driving up both rents and home
prices. They’re pouring fuel on the fire of the affordable housing crisis that
so many of our communities are facing, leaving working families behind. The
housing in our neighborhoods should be homes for people, not profit centers for
Wall Street. It’s time for Congress to put in place commonsense guardrails that
ensure all families have a fair chance to buy or rent a home in their community
at a price they can afford.”?

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 hedge
funds and investors were 68% more likely than small landlords to file
evictions, even after controlling for property, tenant, and neighborhood

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 support Senator Merkley’s proposal to address the
impact of large investors in the housing market. Often, these firms concentrate
their purchases in communities of color, limiting first-time homebuyer
opportunities to families that already face discrimination in the marketplace.
The transfer of the tax revenues to downpayment assistance programs further
enhances the value of this bill,” said Doug Ryan Vice President, Policy
& Applied Research, Prosperity Now.

“In addition to helping curb the consolidation of
single family homeownership by Wall Street firms, this legislation would go a
long way in helping prospective first time homeowners by providing the means
for down payment assistance. Additionally, limiting concentration in rental
housing will likely result in lower rent increases for tenants, which is
crucial in this time of great economic uncertainty,” said Chris Noble,
Esq., Senior Policy Coordinator for the Private Equity Stakeholder Project.

“Everyone deserves a safe, stable, and affordable place
to call home. Private equity firms, however, have instead devised a business
model that prioritizes profits over people, regardless of the economic
consequences that fall on our communities. The presence of private equity firms
engaging in the housing market is one of the most concerning threats to
financial stability among Oregonian families, especially for renters,
prospective homebuyers, and Oregonians living on low or fixed incomes. This bold
piece of legislation will help change the tide of our national housing market
and will protect families from predatory investment practices that contribute
to our ongoing housing and affordability crises here in Oregon and in other
communities across the country,” said Loren Naldoza, Legislative &
Communications Manager with Neighborhood Partnerships.

Senator Merkley has kept a steady drumbeat on the need for
federal action to meet the Americans’ housing needs and to root out systemic
inequities in the housing market. That work has included urging the Federal
Financial Institutions Examination Council to work with the housing appraisal
industry to address disparities in home valuations for communities of
color;?and pushing Senate leaders to deliver critical housing assistance to
Oregonians struggling to find shelter in the wake of last year’s catastrophic