Rather than interfering with the housing market’s setting of prices, the Legislature should focus on addressing obstacles to the construction of more housing in the state.
On August 27, 2024, the Comptroller released a report examining the problem of housing affordability in the state. Explosive growth in housing prices in the last few years- especially in large metropolitan areas where many Texans live- has put homebuying out of reach for many Texans, a problem that is exacerbated by mortgage rates more than doubling since their pandemic-era low.
The discontent of many Texans regarding their difficulty in finding a house on the market that fits their budget has led to an examination of the causes of this problem. One aspect of the single-family homes market that has drawn the attention of the public is the involvement of institutional investors (IIs). IIs purchase hundreds or thousands of single-family homes (SFHs), often renting them out during a long-term holding period, but sometimes “flipping” them shortly after purchasing (and often renovating) them.
IIs are typically large financial companies, a few of which are publicly traded. They are distinct from “mom and pop” real estate investors- individuals who acquire several rental properties over time. There is no consensus on how many homes a small investor can own before ceasing to be “small,” but an arbitrary figure of nine or ten houses is sometimes used.
IIs have attracted intense criticism in many quarters by those who believe they drive up housing prices and make home-purchasing all but impossible for the public. Concern over IIs is resulting in increased attention from lawmakers. For example, House Bill 1057 (88R; Hinojosa) would have prohibited certain investment firms from entering into a contract to purchase a house until it has been on the market for at least 29 days.
It is undoubtedly true that, all else being equal, more buyers in a market will exert upward pressure on prices. An objective analysis of the data, however, reveals that IIs’ effect on the housing market is often exaggerated, and that their beneficial effects on the housing market are often ignored. Rather than interfering with the housing market’s setting of prices, the Legislature should focus on addressing obstacles to the construction of more housing in the state.
Read the full report below: