When something in your rental breaks, you typically call your local landlord to have it fixed. But now, you might want to have your banker on speed dial.

According to recent research from Americans for Financial Reform, private equity firms have become landlords to at least 1.6 million families across the U.S.

The Private Equity Stakeholder Project (PESP) estimates that these firms now manage $7.5 trillion in assets and buy upward of 25% of all houses.

The trend—dubbed the “institutionalization of landlording”—picked up steam during the pandemic (as noted by a recent paper studying rental trends).

Disrupted supply and demand

In recent years, would-be homeowners have had a tough time landing their dream home— thanks to bidding wars and aggressive all-cash buyers,

Now, another big shot has entered the market as private equity money managers buy up homes at a breakneck pace.

“There is no doubt that the housing market has reignited from a home price perspective,” Andy Walden, vice president of enterprise research at Black Knight, recently said.

Interest rates on a 30-year mortgage are hovering near 7%, which, of course, means higher mortgage payments (or less buying power), so many hopeful homeowners are postponing buying.

Institutional investors, however, don’t need to worry about those high rates because they are buying houses with all cash.

This can sometimes be a deciding factor for a seller as well. An all-cash offer eliminates the possibility of getting bogged down with the banks over buyer loan approval, appraisals, and other details.

What all this eventually boils down to is a standard case of supply and demand.

Supply has stayed low because institutional investors are buying up the bulk of available inventory. In turn, demand and home prices have skyrocketed.

In a typical cycle, high interest rates would steadily push home prices down because buyers’ purchasing power is reduced. But now, with private equity buying homes for all cash, interest rates lose some of their cooling effect.

As such, big money gets to sidestep Washington’s policies.

What can Congress do?

Last month, Democratic lawmakers introduced a bill aimed at curtailing investor activity in the housing market—which, they argue, is the main culprit of record home prices.

The legislation, introduced by Sens. Sherrod Brown (D-Ohio) and Ron Wyden (D-Ore.), would ban investors with 50 or more single-family rentals from deducting interest or depreciation from their taxes.

This would eliminate substantial tax savings for private equity and could slow overall buying by these companies.

Although data from real estate brokerage Redfin shows that investors’ share of the housing market dropped by 18% in the first quarter of 2023, those same firms are now setting their sights on lower-priced starter homes.

What’s ahead

The housing market, overall, has cooled.

With higher interest rates, record home prices, and the threat of a cooldown, the pace of price growth is significantly slower compared to the pandemic hysteria.

Even so, home prices keep hitting fresh new records, according to Zillow data.

And for the average Joe, securing the American Dream of homeownership remains just that—a dream.