The Senate has passed a meaningful bill to address the nation’s housing affordability problems. Clearing the chamber with overwhelming bipartisan support, the 21st Century ROAD to Housing Act would change a wide range of federal rules and increase funding to facilitate a wave of homebuilding, easing the shortfall that has led to a decade of rising home prices and rents. It would also, unfortunately, undermine an increasingly promising source for rental supply: the build-to-rent business.

To make sense of the Senate’s decision to include this provision, it helps to begin with the politics of housing affordability. After struggling for years to find political footing on the issue, populists in both parties have converged on a common culprit: institutional investors. It makes a good deal of political sense, simplifying an otherwise complicated story about zoning, tax policy, and other factors that are difficult to understand or explain. And the public largely agrees, with almost three in four blaming investors for the high cost of housing.

As with many political stories, however, it doesn’t fit easily with economic reality. Large institutional investors in single-family rentals make up only about 3 percent of the single-family rental market and less than 0.5 percent of the total single-family market. They have a much larger presence in some places, but research shows that even there they have been minor contributor to home price increases.

At best, blaming investors for the high cost of housing is a distraction that will waste time and effort better spent on other steps. At worst, it could lead to proposals that make housing affordability worse than it is now. Unfortunately, that is what has happened in the Senate. In their zeal to punish institutional investors with this move, Congress could ultimately decrease the number of rental units built each year by at least 72,000, meaning its package to expand the supply of housing has included a measure that would actually reduce housing development.

What the 21st Century ROAD to Housing Act does

The bill prohibits institutional investors that own more than 350 single-family homes from buying more unless the new inventory falls under one of several exemptions. The two most relevant are for built-to-rent properties and those that are part of a program to “boost homeownership” by reporting tenants’ positive rental payment history to credit reporting agencies and providing tenants a 30-day right of first refusal if the property is sold. The first of these requires the institutional investor to dispose of applicable properties within seven years, which can be extended up to three additional years to allow a renter to complete or renew their lease. When the renter declines to renew their lease, they have a 30-day right of first refusal.

How investors will respond

In theory, the two exemptions allow for two different models of single-family rental housing. In practice, however, they will facilitate only one, with new capital flowing away from the now costly build-to-rent model and into a new model designed to meet the relatively cost-free exemption for programs that “boost homeownership” under the bill’s rules.

This shift is attributable largely to the high cost of the seven-year disposal requirement. Investors will need to leave the home vacant for about a month to prepare it for sale, another two months while it is on the market, and two more months between the accepted offer and the closing of the deal. Assuming monthly rental revenue is about 0.8 percent of the home’s value, those five months of vacancy will generate lost revenue of 4 percent of the home’s value. Add the 5 percent realtors’ fees, and the disposal’s total cost would be about 9 percent of the home’s value. These costs won’t be incurred until the end of the seven-year period during which the investor can hold the properties, reducing the present value of the cost to 6 percent. That is a sizable portion of the investors’ margin.

Moreover, there are versions of the build-to-rent model that can’t be sold off easily. Some built-to-rent communities are made up of townhouses placed close to one another on a single parcel of land that cannot be subdivided without violating local zoning ordinances. Other communities have common facilities—dog runs, parks, community centers, pools, and so forth—that would need to be transitioned to a homeowners’ association at a loss. All of that would drive their margin down more.

In contrast, the cost of complying with the “home boosting” exemption is simply providing credit reporting agencies with a tenant’s positive rental payment history and offering the tenant a 30-day right of first refusal. Given the enormous cost difference, we expect most new activity in the single-family space to use the home boosting exemption and ignore the exemption for build-to-rent housing.

How shifting investor priorities will affect housing supply

The bill will thus lead to a single-family channel in which almost all customers are provided rental payment reporting services and a 30-day right of first refusal if the home is sold while the build-to-rent model becomes less common.

The National Association of Homebuilders estimates that about 84,000 single-family units were built to rent in 2024 and 68,000 in 2025, an average of 76,000 units. But these figures don’t include units in completed developments that are sold to investors, which has become one of these investors’ main sources of new inventory. We estimate that including those units would bring the annual increase in supply from homes built to rent up to around 120,000 units per year, most of which are owned by large institutional participants. This suggests that if the bill were to result in a 60 percent decrease in build-to-rent activity, likely a conservative estimate, 72,000 fewer rental units would be built each year, a decline of more than 7 percent of single-family home completions and 18 percent of rental completions.

Worse still, the loss would be in the housing stock we need most: middle-income rental housing. The economics of the build-to-rent model don’t work at the top of the market because high-income consumers who prefer single-family homes tend to purchase them, and the economics don’t work at the bottom of the market because low-income consumers typically cannot afford the level of rent required to cover the investor’s margin.

Where they work is in the middle of the market, where many families prefer to live in single-family communities in which they cannot afford to buy a home but can afford the level of rent needed to cover the single-family rental investor’s margin. And middle-income renters face the most significant shortfall in housing supply, aligning the model with the nation’s most pressing housing need.

Revising the ROAD to Housing Act to better expand supply

It is unclear why the Senate made this policy mistake in an otherwise valuable piece of legislation, but the solution is straightforward. Congress should strike the requirement to dispose of the properties that fall under the build-to-rent exemption and change the “home boosting” exemption to require a more meaningful social benefit to avoid the statute’s prohibitions, like deeper tenant protections or down payment assistance. This would bring the single-family rental provision in line with the broader bill, ensuring that the significant capital flowing through this channel will help address the nation’s pressing housing needs.