New York Seeks to Curb Private Equity’s Homebuying Power

Gov. Kathy Hochul is trying to alleviate New York’s housing shortage by blocking private equity firms from bigfooting families that want to purchase a starter home.

This year, the governor proposed a new law requiring institutional investors with more than $50 million in assets and a portfolio of 10 or more single-family properties to wait 75 days before making an offer to purchase a one- or two-family home on the market, or face a $250,000 fine per offer. 

Hochul acknowledged that private equity firms could end up acquiring these kinds of properties but that a two-and-a-half month delay would give lower- and middle-income families the first crack at owning a home they could afford.

“I don’t want any more hardworking individuals or moms or dads or anybody who wants this dream to become reality to have to lose out to you. And that’s how we’re going to stop it,” she told a crowd of civic leaders outside Rochester on Feb. 28. “I want to make sure that people have a chance to get in that market and be able to bid on it.”

The homeownership proposal is a key cog in the governor’s $252 billion budget proposal that attempts to rein in the state’s high cost of living after voters said it should be Albany’s top priority this year. The plan includes a number of responses targeting the effects of rising inflation, including checks worth $300 to $500 to taxpayers and spending $50 million on aid for families to make down payments on their homes and to encourage the construction of more starter homes.

Real estate leaders remain cool to the private equity curb, which Hochul first floated at her State of the State address in January.

“The messaging around this legislation creates yet another impression that investment in housing is not welcomed in New York,” Real Estate Board of New York President James Whelan said in a statement to Commercial Observer. “We encourage elected officials to instead focus on solutions that will actually improve the quality and amount of housing across the state.”

But the rule arose from concerns among lawmakers that the price of housing has spiraled out of reach for people across the state, and that New Yorkers were increasingly competing with deep-pocketed investors that could pay for properties without a mortgage. 

Nearly 5 percent of all homes in the state between 2018 and 2022 were purchased by large institutional investors, according to the Private Equity Stakeholder Project, a watchdog. 

“Our parents and grandparents didn’t have to bid against private equity firms when they were buying their first home,” Hochul said at the event. “And these huge, greedy conglomerates are gobbling up the housing stock, and they’re trying to increase their portfolios and bring in more money, and they’re building up a lot more vacation homes and rentals.”

Private equity has become a reliable political boogeyman for myriad harmful effects to the nation’s economy, including substantial job losses, higher rents and even premature deaths. Some of the hand-wringing over private equity’s role in the dwindling supply of housing, however, appears justified.

When more than 5 million homes went into foreclosure during the Great Recession, investors scooped up hundreds of thousands of distressed single-family properties throughout the Sun Belt and converted them into rentals. In 2023, the country had an estimated shortfall of 4 million to 7 million homes after a decade of underbuilding and rising mortgage rates.

Construction of new housing has started to rebound since the pandemic. Production of single-family homes reached more than 1 million nationally in both 2022 and 2023 — the first time since the Great Recession. But the price of single-family homes also rose 47 percent from 2017 to 2022.

Private equity firms have continued to enter the U.S. market, building tens of thousands of residential properties available for rent but not for sale. If trends continue, those firms could own 40 percent of the country’s single-family rental homes by 2030.

Finance advocates wary of private equity’s creeping influence on the housing market believe Hochul is getting ahead of a trend developing in New York state.

“As private equity control of housing has driven up rents and shut out prospective homebuyers across the country, Gov. Hochul’s proactive move to limit private equity intrusion into the single- and two-family home market in New York state is wise,” said Sam Garin, a spokesperson with the Private Equity Stakeholder Project, which tracks the effects of private equity on industries.

Other states are considering even stricter measures. A North Carolina bill proposes restricting institutional investors from owning more than 100 homes or face daily fines up to $100. Lawmakers in Washington state are considering a bill that would prohibit investment entities that own more than 50 single-family homes from buying any more. Minnesota legislators are evaluating a bill that bars corporate entities from turning single-family homes into rental units. And Connecticut lawmakers have looked into banning private equity firms from purchasing single-families, duplexes or triplexes entirely.

Investors said New York’s proposed waiting period could limit the construction of new units in the future.

“Anything that restricts the free market is problematic, and I think institutional participation in the homeownership market is more positive than it’s been given credit for,” said John Isakson, CEO of the Atlanta-based ARK Homes for Rent. “We have a shortage of homes, whether it’s rental or ownership, and we need to increase the stock.”

Sam Chandan, director of New York University’s Chao-Hon Chen Institute for Global Real Estate Finance, said he believes state lawmakers’ focus on limiting private equity’s investments isn’t tackling the root causes of the state’s housing shortage.

“Given the challenges we have around housing affordability, high interest rates and limited supply, the focus on institutional investors as part of the political discourse isn’t unexpected, but it’s not necessarily supported by the data,” he said. “The real challenge for us is the rise in mortgage rates and the availability of skilled labor, cost of materials, and how we zone developments.”

That hasn’t stopped investors from purchasing single-family lots in certain parts of the state. Last year, corporate investors (not individual ones) owned about 248,000 residential properties in New York state, or about 6.2 percent of the state’s housing stock. That included 76,000 properties in the New York metro area, or just over 10 percent of the region’s residential parcels, according to the Center for Geospatial Solutions at the nonprofit Lincoln Institute of Land Policy. During the third quarter of 2024 alone, investors purchased 2,345 homes in the New York City metro area, or 16.7 percent of all residential properties, a Redfin analysis found.

Private equity investors typically hoovered up houses in low-income neighborhoods in the New York metro area such as Mount Vernon and Peekskill, as well as in western New York’s cities. In Rochester, for example, institutional purchases of single-
family homes rose 220 percent between 2021 and 2024, one of the largest increases in the nation’s top 100 metro areas. Three out-of-state firms alone accounted for the purchase of 415 single-family homes in Monroe County over the past four years, the Rochester Business Journal reported.

“In almost every market we’ve looked at, they’re concentrated in low- to moderate-income, high-minority census tracts where house prices are relatively low but rents are still high,” said George McCarthy, president and CEO of the nonprofit Lincoln Institute of Land Policy. “What they’ve found out is that low-income people tend to pay their rent on time, so their capitalization rates are going down.”

State lawmakers are discussing several additional measures to discourage private equity firms from buying New York homes ahead of the April 1 budget deadline. 

State Sen. Liz Krueger of Manhattan and Rep. Michaelle Solages of Nassau County introduced a bill, the End Hedge Fund Control of New York Homes Act, that would impose a 50 percent tax on hedge fund purchases of one- to four-family homes. The bill would also force managed fund companies to lower their holdings of single-family homes by 10 percent each year over the next decade. The revenue raised would go toward a state-managed grant program helping families with their home down payments. 

Rep. Linda Rosenthal of Manhattan, who chairs the Assembly’s Committee on Housing, also proposed a measure that would prevent corporate entities that own more than one single-family rental from deducting interest or depreciation values on their properties. 

Rosenthal wasn’t sure whether the Assembly would include the private equity policies in its one-house budget, typically released in the second week of March, but said that the governor’s measures had broad appeal in both legislative houses.

“Many people would support this because of the problem of private equity firms gobbling up homes and inflating prices,” she said. “It’s already happening in parts of upstate, and that’s what’s giving me and others pause, because rapacious buying up of one- to two-family homes is driving up the cost and eliminating the possibility that families can stay or settle in those areas.”