A new law aims to make Wall Street investors feel unwelcome in the market for existing homes, while at the same time urging them to build more supply. It is a tricky balancing act, and failure would push up rents.
Under the 21st Century ROAD to Housing Act, which passed into law last week despite President Trump's refusal to sign it, investors who already own more than 350 family homes can't buy any more from the existing housing stock. There are a couple of exceptions, however. One is to buy homes that need so much renovation that regular buyers don't want them. Another is when the tenant is offered a right to eventually own the house.
The new rules effectively end the so-called scattered-site strategy that powerful investors used to accumulate large portfolios of family homes over the last 15 years. Any landlords that don't already have scale will find it hard to expand their portfolios through the exemptions.
Big landlords are being nudged to pour cash into the build-to-rent sector instead. This means taking on development risk and constructing entire rental neighborhoods from scratch. The benefit of constructing whole rental communities in one area is that they are much cheaper to maintain than homes that are scattered across dispersed neighborhoods.
Build-to-rent is exempt from restrictions under the new law. Like multifamily apartment buildings, it is an area of the housing market in which large investors can continue to operate freely. Single family homes in build-to-rent communities tend to attract young families who have outgrown apartments or retirees who want spacious homes. Tenants in these communities tend to stay longer than people who rent apartments.
Corporate landlords have always had to tolerate a level of political risk as their presence in the housing market is unpopular. But support for the restrictions in Congress was almost unanimous across the political spectrum, which has spooked investors.
Clearly, measures that hurt Wall Street landlords are vote winners. Anyone considering putting money into the housing market, even in areas that are encouraged by this latest law, must now weigh the risk that future administrations could tighten the rules further.
Returns on build-to-rent investments don't look high enough to compensate for the risk. The average cap rate -- a measure of the operating income these rental neighborhoods generate as a percentage of the value of the assets -- on developments is around 5% to 5.5% according to CBRE. With yields on 10-year Treasury bonds currently around 4.6%, that isn't hugely appealing for an increasingly sensitive sector.
Investors also have fewer options to sell build-to-rent assets than scattered-site housing. As single-family homes are in demand, investors can unload individual units to regular buyers at prices that are 10% to 20% higher than what an investor would be willing to pay. Build-to-rent communities are hard -- or impossible under some zoning rules -- to sell off individually to consumers this way.
Landlords appear to be trimming their exposure already. Eight large institutional investors were net sellers of more than 3,000 homes in the second quarter of this year, a fivefold increase in net-selling activity from the same period of last year, according to Lance Lambert, co-founder of housing data analytics firm ResiClub.
This isn't significant enough to make a dent in home prices but is an early sign that investors are rethinking their portfolios. According to industry professionals, some smaller investors plan to cash out permanently by selling homes to individual home buyers over time, or by unloading their entire portfolio to another investor. The law doesn't prevent corporate landlords from selling their existing properties to each other.
The trend could boost the largest listed landlords like American Homes 4 Rent and Invitation Homes, which have deep pockets to buy the portfolios of smaller rivals. Shares in both companies are up about a fifth from lows seen earlier this year, when a more punishing version of the bill that ultimately passed was circulating.
Corporate landlords owned by private-equity giants could also pick up assets if smaller investors decide to sell. Blackstone owns Home Partners of America, which has around 20,000 family houses, while Cerberus Capital Management owns FirstKey Homes.
More general investors like pension funds and diversified commercial real-estate funds can move their cash into less politically touchy assets like logistics warehouses or private credit. The recent performance of build-to-rent makes it easier for them to take a pass. Rents were flat in May compared with a year ago, data from CBRE shows.
With less capital to go around, the supply of rental housing could tighten and push up rents. That would ultimately hurt a group of people the new law is trying to help -- renters trying to get onto the housing ladder.
Write to Carol Ryan at carol.ryan@wsj.com
(END) Dow Jones Newswires
July 16, 2026 05:30 ET (09:30 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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