Analysis of Trump’s Proposed Executive Order on Housing
There’s a general consensus that not many will contest President Trump’s upcoming executive order prohibiting corporate purchases of housing. It sounds reasonable at first glance. But, I think it only addresses surface-level issues while ignoring the deeper, more complex problems that actually drive the housing market—and, in fact, it might even worsen the situation.
During the pandemic, institutional investors jumped into the housing market, but that trend has since peaked and began to decline. Corporate ownership still represents only a small fraction of total housing stock, and during the height of the bubble, the reasons for skyrocketing housing prices were not primarily due to institutional buyers. The reality is that inflated prices have created opportunities for these investors, rather than the other way around.
The objective, I believe, shouldn’t solely focus on reducing debt; the aim should be to provide more affordable housing.
Government policies have played a significant role in expanding the housing market, with institutional investors merely reacting to those changes.
In the pandemic’s early days, the Federal Reserve slashed interest rates to almost zero, leading mortgage rates to fall below 3%. Concurrently, the Fed purchased around $2.7 trillion in mortgage-backed securities, while HUD expanded its “Affordable Home Ownership” program to attract more subsidized buyers into the market. Not surprisingly, these interventions had predictable outcomes.
When the government offers such low-interest rates combined with minimal down payments, it’s no wonder buyers flood the market, prompting sellers to hike prices. Bubbles have become a characteristic of this market rather than an anomaly.
Institutional investors have entered this environment, drawn by the seemingly easy potential for profit. As housing prices climbed, so did rents, pushing developers to construct more rental units. Ultimately, both of these trends can be traced back to the same roots: government involvement has made housing less affordable, effectively subsidizing that unaffordability.
Now, Trump appears to be targeting the symptoms—specifically corporate buyers—without addressing the foundational issues that led to market inflation in the first place.
The ongoing fight with Federal Reserve Chairman Jerome Powell regarding interest rates aims to push them back toward zero. Meanwhile, the Fed still holds around $2.1 trillion in mortgage-backed securities, and Trump’s proposed measures for Fannie Mae and Freddie Mac to acquire an additional $200 billion in these securities underscore the desire to reduce mortgage rates even further.
However, again, the goal should not just be about reducing debt but rather about making houses more affordable.
Lowering interest rates artificially can prop up prices and complicate necessary adjustments in the market. While there are signs that some prices are beginning to soften, it’s clear we need to continue those adjustments. Current policies aimed at keeping interest rates low actually risk inflating another market bubble.
Regarding corporate home purchases, even at the peak of the pandemic, institutional investors—defined as companies owning at least 100 single-family homes—contained only about 3.1% of the housing market. That number has now dipped to around 1% as many investors begin to exit as the market shifts.
Consequently, Trump’s proposed anti-takeover measures seem delayed, focusing on a small part of the market and running the risk of merely being a superficial response to deeper issues.
If President Trump is serious about bringing housing prices down and aligning them with median incomes, he needs to reconsider the policies that have inflated the housing bubble in the first place. That means focusing on the structures involved, not just the headlines.
Eliminating government involvement in the mortgage market is crucial. The incoming Fed Chairman must work to unwind the Fed’s mortgage-backed securities holdings, as this $2.1 trillion cushion keeps mortgage rates artificially low, which ultimately drives up home prices.
Abolishing universal homeownership policies is another essential step. The federal government continues to subsidize buyers who may not be ready to engage in the market, injecting demand that wouldn’t naturally exist. The aim should be to align housing prices with individual incomes instead of chasing idealistic notions of universal ownership. Despite countless subsidies and federal supports, homeownership rates remain stagnant in the mid-60s.
Moreover, it’s crucial to stop chasing interest rates that hover around zero. While a 30-year loan at 2% may sound enticing, the repercussions on house prices need careful consideration. Home prices are currently being sold low, and even if politicians tout their “deals,” buyers will likely find themselves perpetually paying inflated costs. It might be time to let the market dictate the rates. Even with recent cuts, regular home purchasing is still low due to elevated prices.
Ending the practice of long-term fixed mortgages, such as 30 years, might also warrant reconsideration. Before the New Deal, short-term loans from three to seven years were commonplace. Franklin D. Roosevelt’s National Housing Act of 1934 fundamentally changed this, promoting longer, fixed-rate housing loans. Congress adopted a 30-year mortgage in 1954, and over the years, various mechanisms have led such loans to dominate the U.S. housing market.
The crux of the issue is simple: sellers can’t charge prices buyers can’t afford. Prices only escalate when government intervention allows buyers to inflate their purchasing power artificially.
To summarize, we need to do away with subsidies. It’s time to revoke the mechanisms that keep prices out of sync with incomes. Housing should operate like any other consumer market, reflecting people’s actual earning capabilities.
That’s the real fix. Anything else merely addresses symptoms, leaving the underlying issues unexamined.
