Real estate investors who buy single-family homes could be taxed under new legislation

Sen. Tammy Baldwin is making a second attempt to pass a federal bill that would tax real estate investors who buy significant numbers of single-family homes. This plan is a plan aimed at increasing the availability of affordable housing.

The Affordable Housing and Homeowner Protection Act would impose a transfer tax on investors who purchase and hold 15 or more single-family homes nationwide. The senator said the proceeds would provide up to $50 billion over 10 years to help build and preserve about 3 million affordable housing units across the country.

“In some communities, there are very few paths to homeownership because so many homes are being taken over by very wealthy investors, mostly out of state,” Baldwin said.

According to residential real estate brokerage Redfin, the number of single-family homes being purchased by investors decreased nationwide last year as home prices rose. However, investors still purchased about 16% of the homes purchased nationwide in the third quarter of 2023, more than double the share purchased by investors in 2000.

In Wisconsin, investors purchased 13% of homes in the third quarter of 2023.

Baldwin's latest bill is similar to the Stop Predatory Investment Act of 2023, which Baldwin co-sponsored.

Wisconsin civil rights attorney Christine Donahoe spoke about the bill on WPR's “The Morning Show.” She criticized out-of-state real estate investors buying local housing stock.

“They look at single-family homes as an asset class. They don't think single-family homes are necessary for families, for cities, and as part of a community. They're going to gouge tenants as much as possible. ,” Donahoe said.

Donahoe said investors are forcing out tenants because rents are too high, and homebuyers because investors are buying properties outright with cash.

From 2005 to 2020, Milwaukee's owner occupancy rate fell from 80 percent to 69 percent, according to a study by Marquette Law School's Lubar Center for Public Policy Research and Civic Education. In parts of the north and west, the decline was twice that amount.

Out-of-state real estate investor purchases single-family home

Baldwin is particularly concerned about out-of-state real estate investors buying up local housing inventory and pricing homeowners and prospective renters out of the market.

“This deprives communities of the opportunity for many people to own their own homes and care about the neighborhoods they live in because it's not a one-off. They have roots there,” Baldwin said. said.

Since 2005, the number of residential properties owned by out-of-state landlords has quadrupled, from 1,300 to 6,000, according to a study released in 2021. Most properties are single-family or two-family homes.

Ohio-based VineBrook Homes Trust is one of the largest owners of single-family rental homes in Wisconsin. The company has purchased about 1,000 homes in Wisconsin and about 25,000 homes nationwide, according to the Milwaukee Journal Sentinel.

Conducted by Oxford Economics An independent economic study of the impact of Vinebrook Homes on Milwaukee. According to the report, Vinebrook Homes residents pay an average of $113 less per month than the average rent in the area.

Baldwin's tax targets investors like Vinebrook Homes. Funds from these taxes will be split between the Housing Trust Fund and the Capital Magnet Fund to build or rehabilitate more than 300,000 homes for very low-income Americans and provide support to low-income households, according to Baldwin's office. The deal could help finance 2.7 million homes for the United States. .

Nonprofits, state and local governments would be exempt from the tax, as would new construction. This tax targets existing single-family homes. For investors who own 16 to 25 single-family homes, the interest rate will be set at 1% of the purchase price. 3% of the purchase price for investors who own 26 to 100 single-family homes. 5% of the purchase price applies to investors who own 100 or more single-family homes.

Real estate investors say taxes are not the answer

Some research suggests that the solution to the housing shortage and rising house prices is to build more housing, and that investors can play a role in that.

The Wisconsin Builders Association said in a written statement to WPR that the proposed bill is not the right approach. Instead, they support eliminating regulations, saying it would cut costs and speed up new construction.

“The regulatory framework is extensive. Our members report that it takes an average of 14 months to break ground on housing developments because of the regulatory framework that must be overcome,” the statement said.

Jason Rand, co-founder of the Wisconsin Real Estate Investors Association, said the tax would discourage investors. Lund said the tax targets real estate investors who neglect their property but act in good faith.

“Local governments, cities, and states are looking at us all. And the companies that are doing this right and not burdening our communities are the ones that bear the brunt of the feedback.” said Rand.