Cotality’s Thom Malone on Trump’s proposed institutional investor ban

Housing professionals across the country raised their eyebrows earlier this week when President Donald Trump said he would look to stop large institutional investors from buying homes, citing increased affordability pressures on the typical American consumer.

Cotality principal economist Thom Malone has long studied the impacts that real estate investors of all sizes have on U.S. housing market dynamics. In an interview with HousingWire, he said that banning mega investors — defined by Cotality as firms that own more than 1,000 homes — would have a minimal impact on improved affordability metrics and could, in fact, make things more difficult.

Editor’s note: This interview has been edited for clarity and length.

Neil Pierson: Let’s start by talking about the president’s proposal, which didn’t offer many details. Is it simply targeting one- to four-unit properties, or is there a chance it would go further? What do we know at this point?

Thom Malone: Very little. I believe it would stop institutional investors — “institutional” is not defined — from buying properties. This is important in that they’d stop them from buying properties but not necessarily saying ‘sell off.’ It’s not banning them from owning properties.

How it would do that is anyone’s guess. What properties exactly are they talking about? I believe it’s single-family, but it’s also not exactly clear, because when people say single-family, they’re often just talking about single-family detached homes. Single-family attached also exists, i.e., townhomes, so it could include those.

NP: Given that these institutional investors account for about 2% of the market, what would be the immediate impact of stopping them from buying more homes?

TM: The theoretical impact would be that —  and you can go back to Econ 101 for this — investors, like anyone else buying homes, are additional demand in the market. If they stop buying homes, that would reduce demand. And that might reduce prices.

But the construction sector could also respond to this by pulling back. Demand for their product could decrease, so it could also restrict supply, and that could somewhat blunt the effects of the drop in demand. The big caveat on this is that, like we said, they’re only about 2% of the market. So the more likely effect is if institutional investors did stop buying homes, it probably wouldn’t be much of a detectable effect at all.

There might be some outlier neighborhoods or even cities like Atlanta, which kind of sticks out. It’s the only metro area in the country that has over 10% of their single-family purchases from institutional investors. So maybe this will make a difference in particular neighborhoods where they’re very active, but that would be extremely isolated.

By and large, most investors are very small investors, not mega investors. On the rental side of the market, this could potentially increase rents, because conversely, as it’s decreasing the demand for buying homes, it’s also decreasing the supply of single-family rental homes. And in that way, it would, in theory, actually increase rents.

NP: That tied into my next question since it seems there are potential negative side effects. First and foremost, it could increase rents. Is there anything else that might adversely impact the market in general?

TM: If there were an increase in rents due to a decrease in supply, it would potentially shut off one channel of access to nicer neighborhoods for people who can’t afford to buy at the moment and are looking to rent.

I live in a townhome. There are a decent amount of rentals in in my townhome community. We’re zoned in a pretty good school district. A lot of people with kids who can’t necessarily afford to buy in this neighborhood might look to rent one of these townhomes instead. But if rents go up, that might lock those people out, and they conversely can’t buy the home. So it could decrease access to some neighborhoods for some renters.

NP: In mid-2024, a Government Accountability Office study found that institutional investors may have pushed home prices higher after the housing crisis. Does Cotality’s data indicate this could’ve happened after the pandemic too?

TM: I would agree that they did increase prices. But I have no real idea of how much.

They increased their activity a lot during the pandemic. But this is multifaceted. Interest rates were dropping. A lot of first-time homebuyers were jumping into the market at the same time. It’s hard to disentangle the additional demand that investors had on prices from everything else that was going on at the time.

Investors account for additional demand in the market, so they definitely increased prices in the same way that additional first-time homebuyers, or any other kind of buyer, would increase them. Prices went up 50% over the last five years. Were they responsible for 10% of that, 5% of that, 2% of that? It’s hard to say.

NP: Most of these investors are continuing to purchase homes in cash, correct? The typical consumer buyer is not going to bring $500,000 in cash to the table, so is that just a built-in advantage that these companies have?

TM: That’s one of the advantages they have, amongst others. Firstly, yes, they can pay all cash, which means they can waive the financing and appraisal contingencies and push for a quicker transaction.

Secondly, they’re probably more likely to waive an inspection contingency on a property as well, because that risk of something being wrong with the property is diversified amongst the thousands of homes they own.

When I buy my home, if something’s wrong with the plumbing, I really don’t want there to be something wrong with the plumbing, because this is the only home I own. If something’s wrong with the plumbing in one of thousands of homes you own, it’s really not that big of a deal, and it’s just sort of a risk that’s inherent in your model, so it gets spread out across all the properties you own.

The other advantage they have is they just have deeper pockets than most people. So if you get into a bidding war with them and they really want the property, they can just outgun you in terms of the amount of cash they can put in.

NP: Trump’s idea is not the first policy proposal of its kind. Do you think there might be any misconceptions or biases against these corporate homebuyers that make them a target?

TM: There might be a misconception about the impact that these groups have on the market. Like I said, they’re a really small share. They make 1% to 2% of purchases.

The Urban Institute did a study in 2022 where they found that groups like these own 550,000-ish homes nationwide, so they’re a small share of the housing stock as well. If we’re talking about all investors, including small investors, then that could be a big impact. But we’re just talking about the big guys, and relative to everyone else in the market, they’re a small slice.

For sure, on an individual level, like we mentioned before, if you happen to be bidding on the same property as one of these companies, it’s hard for you as an owner-occupied buyer to present a more competitive bid than them.