Congress Is Introducing a Bill to Stop Wall Street Investors From Buying Single-Family Homes. Here's What It Means for Consumers

It could be a very good thing for buyers.

Anyone who's tried to buy a home over the last 24 months has no doubt faced their share of challenges. Not only have mortgage rates soared this year, but even when borrowing rates were far more competitive during the second half of 2020 and 2021, the real estate market lacked housing supply in a very big way. That was the case this year as well. And when there's lots of competition between buyers to scoop up homes, housing prices tend to rise.

But it's not just everyday buyers who are competing with one another in the housing market. Buyers also have to compete with investors -- not just individual landlords who purchase homes as income properties, but big firms who build up massive portfolios of properties. 

Over the past couple of years, investment firms have clearly had an advantage over regular buyers in a market where home prices have been elevated. They have the capital to put up for homes, even when properties are way overpriced. Everyday buyers, on the other hand, generally have to stick to a budget to make sure they can keep up with their mortgage payments. 

But some lawmakers are trying to stop the practice of investors buying up homes. And if they get their way, it could open the market up substantially for regular buyers. 

Stopping Wall Street firms in their tracks

In November, California Democrats introduced a new bill called the Stop Wall Street Landlords Act. Its aim is to curb the practice of investment firms with loads of capital scooping up homes for investment purposes, leaving regular buyers unable to purchase homes themselves. If the bill is passed, it will make it more expensive for single-family-rental companies with more than $100 million in assets to buy and sell homes by imposing added taxes on their transactions.

Right now, there are a number of investment firms that own tens of thousands of homes across the U.S. And many of these firms were able to add to their portfolios in 2020 and 2021, when mortgage rates plunged to record lows but inventory also dried up. 

In the meantime, many regular buyers have struggled to purchase a home since mortgage rates fell and demand soared. And while mortgage rates are much higher this year than they were during the latter part of 2020 and 2021, a lack of inventory is still forcing buyers to duke it out -- not just with each other, but with investment companies with loads of financial resources.

Will Wall Street investors back away?

If the Stop Wall Street Landlords Act is passed, buying income properties could become a lot less lucrative for investors. And so the bill might push some investors out of the market, thereby reducing the competition for regular buyers and helping to bring home prices down. As such, those who have been struggling to purchase a home may want to write to their local lawmakers urging them to support this bill, since it's regular buyers who really stand to benefit from it the most.