Congress has passed 21st Century ROAD to Housing Act, HR 6644. The bill contains dozens of provisions to address America’s ongoing housing affordability crisis. Chief among the provisions is Title X, Home-Ownership for Main Street America, which institutes a 15-year ban on Large Institutional Investors from purchasing “or enter[ing] into a contract to directly or indirectly purchase” single-family homes.
Because a “Large Institutional Investor” is, by definition, an entity that owns or controls 350 or more single‑family homes, this prohibition functions as a cap on the number of homes such entities can own or control and imposes financial penalties on investors who exceed that limit. However, several types of purchases are excepted, as described below.
Violations of this prohibition can trigger civil penalties of up to $1,000,000 per violation or three times the purchase price of the subject property, whichever is greater.
Key Definitions
- Large Institutional Investor
The bill defines a “Large Institutional Investor” as a for‑profit legal entity that is “in the business of investing in, owning, renting, managing, or holding single-family homes” (in whole or in part) and controls 350 or more single-family homes in the aggregate. This definition applies whether the entity works alone or in concert with other entities to control such homes. To control a single-family home means that the entity either owns or generally controls the property, and the bill describes a broad array of qualifying activity. For example, such control can be established by owning or controlling (directly or indirectly) the general partner or managing member of the entity that owns the home, owning more than 25 percent of equity interests in the entity that owns the home (with an exception for passive investors), controlling the manager, management company, or investment advisory of the owner entity, or being the owner, or having primary authority or fiduciary responsibility to make material investment or management decisions relating to, the single‑family home, among others.
- Single-Family Homes
The bill defines a single‑family home as “a structure that contains 2 or fewer dwelling units that are each intended for residential occupancy by a single household” but does not include manufactured homes.
- Purchase
Note that the prohibition on purchases of single‑family homes by Large Institutional Investors is also broad and includes “any purchase, transfer, or other acquisition of single family homes, including through mergers, acquisitions, construction, foreclosures, or bulk purchases, whether or not for cash consideration.”
Exceptions
The bill includes several purchases that do not count towards the 350‑home cap, such as certain build-to-rent programs, certain renovate-to-rent programs, homes operated as part of a 55+ community, and homes acquired from other Large Institutional Investors that owned the property at enactment or who acquired it compliantly. The bill also allows for “purchases” in connection with a foreclosure, a deed-in-lieu of foreclosure, enforcement of mortgages and other security interests, and similar circumstances so long as the action is “not as a long-term investment strategy.” Additional exceptions apply, and we recommend any entity that may fall into the category of Large Institutional Investor carefully review the exceptions in connection with an assessment of their portfolio.
What Happens Next?
Following Congress’s passage of the bill, the President has initially refused to sign the bill until the SAVE Act is enacted—thrusting the bill’s fate back into flux. However, after the President receives the bill, the bill will automatically become law 10 days later unless the President formally vetoes the measure.
If enacted, the Large Institutional Investors provision becomes effective 180 days later. Additionally, by December 31st, (and every year thereafter) all Large Institutional Investors must comply with certain reporting requirements regarding the number and location of the single-family homes it controls.