The proposed regulations lay out how Congress’s limits on big investors snapping up single-family houses will be enforced this year.
During the shaping of the 21st Century ROAD to Housing Act, the Senate briefly introduced a broad ban on corporate ownership of single-family rental housing, a move so sweeping it could have jeopardized the emerging build-to-rent segment.
Following intense advocacy by supporters of housing supply, who had pushed for many of the bill’s other provisions, that investor ban was substantially trimmed.
The final form of ROAD, which became law in July, blocks investors who own 350 single-family rental homes from purchasing additional ones. Yet it also carries an extensive list of exemptions permitting large investors to acquire single-family rentals in certain cases.
The principal carve-outs include homes bought as part of a build-to-rent project and dilapidated properties that the investor commits substantial funds to renovate.
The new restrictions are slated to take effect next January. On Thursday, the Treasury Department issued a proposed rule that would define terms left undefined in the statute and clarify the scope of “excepted purchases” that large investors may still make in the single-family market.
Build-to-rent housing that large investors can continue to acquire is defined as a new single-family home that has never been owned by an owner-occupant, is purchased within 18 months of its certificate of occupancy, and is occupied by a renter.
Protected “renovate-to-rent” properties are defined as homes that had major building code violations corrected by the large institutional buyer and for which the investor spent at least 15 percent of the purchase price on improvements.
The rule also provides definitions for rental homes held as part of programs intended to boost homeownership, which constitute another allowed category for large institutional investors. Those programs are typically defined as arrangements in which the renter has the right of first refusal to buy the home and where rent assistance from the homeowner supports the purchase.
Taken together, the clarified exemptions in the Treasury rule still leave ample room for large institutional ownership of single-family homes, aligned with the ROAD to Housing Act’s final text. They won’t be required to divest the properties they already own, and they can continue expanding the supply of investor-owned rentals through major renovations and build-to-rent projects.
Nevertheless, the Treasury rules will impose a host of paperwork burdens on investors, who will need to track and report, for example, exactly how much money they spent on renovating a purchased rental property, or face steep penalties.
Investors who acquire a single-family home in violation of ROAD face a civil penalty of up to $1 million per property purchase.
The proposed Treasury rule underscores how conspicuously the investor restrictions diverge from the broader intent of ROAD. While the law aims to ease the regulatory burden on new housing, large investors will now bear substantial compliance costs simply to demonstrate that they are adding new rental housing stock in the manner envisioned by the act.
