On Tuesday, a group of eight Democratic senators introduced a new bill, the “Stop Predatory Investing Act,” which aims to restrict tax breaks for corporations buying homes. The new rule would affect big investors, such as private equity firms and real estate investment trusts.
If approved, the bill will prohibit investors acquiring 50 or more single-family rental homes from deducting interest or depreciation on those properties. However, if an investor sells one of those properties to a homebuyer or qualified nonprofit, they can deduct the interest and depreciation for the year the property is sold.
The bill is a way for legislators to limit these investors’ gains when buying and renting homes, which they claim has driven up local housing prices and rents. According to the legislators, the U.S. faces a shortage of 3.8 million homes, and potential homeowners are unable to find properties they can afford.
The effort is being led by Senate members Sherrod Brown (D-OH), the chair of the Senate Banking, Housing, and Urban Affairs Committee, and Ron Wyden (D-OR), the chair of the Senate Finance Committee. It also includes Senators Tina Smith (D-MN), Jeff Merkley (D-OR), Jack Reed (D-RI), John Fetterman (D-PA), Elizabeth Warren (D-MA), and Tammy Baldwin (D-WI).
The new bill would allow owners to continue taking deductions on properties financed using Low-Income Housing Tax Credits (LIHTC) that are still in their affordability period, and on build-for-rent single-family housing.
The bill, an amendment to the Internal Revenue Code of 1986, would not disallow deductions for single-family rental homes purchased before enactment.
One example given by the legislators to introduce the bill is Ohio. They say two big investors own more than 12,000 homes in just three Ohio markets. Meanwhile, other investors don’t report how many homes they own.
“In too many communities in Ohio, big investors funded by Wall Street buy up homes that could have gone to first-time homebuyers, then jack up the rent, neglect repairs, and threaten families with eviction,” said Senator Brown in a statement. “Our bill will help prevent corporate landlords from driving up local housing prices and put power back in the hands of working families, who need a safe, affordable place to live and raise their children.”
Housing trade groups, including the National Association of Local Housing Finance Agencies (NALHFA), supported the bill.
“This legislation represents a critical step in safeguarding the long-term affordability and stability of our communities, empowering local governments to protect single-family affordable housing stock, and preserve the well-being of low-income individuals and families,” Jonathan Paine, NALHFA executive director, said in a statement.
Groups supporting the bill recognize that small investors own a large number of rental homes. However, according to these groups, large institutional investors increased their purchases at the height of the pandemic and have continued to purchase a significant share of single-family homes.
Moreover, these big investors are under scrutiny by Congress, accused of gentrifying minority neighborhoods and allegedly displacing large numbers of people of color — Black residents in particular.