New Housing Law Pushes Institutional Landlords Toward Build-to-Rent
The 21st Century ROAD to Housing Act, which became law last week without President Trump’s signature, bars investors who own more than 350 single-family homes from purchasing additional properties from the existing housing stock. Exceptions allow purchases of homes requiring significant renovation or sales offering tenants an eventual ownership path. The restrictions effectively end the scattered-site acquisition strategy that institutional investors have used to amass portfolios over the past 15 years.
The law steers capital toward build-to-rent developments, which remain exempt from the new restrictions. Build-to-rent communities offer lower maintenance costs than scattered-site portfolios but come with development risk and limited exit options. Cap rates on build-to-rent average 5% to 5.5%, according to CBRE, a narrow spread over the current 4.6% yield on 10-year Treasuries. Investors cannot easily sell individual units from build-to-rent communities to retail buyers, unlike scattered-site homes that command 10% to 20% premiums when sold individually.
Eight large institutional investors sold more than 3,000 homes net in the second quarter, a fivefold increase from the prior year, according to ResiClub. Smaller investors are planning exits by selling to individual buyers over time or offloading entire portfolios to other institutions. The law does not prohibit corporate landlords from selling existing properties to each other, a dynamic that could benefit the largest listed landlords like American Homes 4 Rent and Invitation Homes. Shares in both companies have risen roughly 20% from earlier 2025 lows.
Rents in the build-to-rent sector were flat in May year-over-year, per CBRE, and the threat of further regulatory tightening has added political risk to an already low-return asset class. Some institutional investors, including pension funds and diversified commercial real estate funds, may redirect capital to logistics or private credit. The law’s bipartisan support in Congress has spooked investors who previously tolerated political headwinds, and reduced capital flows into rental housing could tighten supply and push rents higher for the renters the legislation aims to help.
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