Populist Pandering Was Always Going to Be Costly
Build Versus Blame Remains the Central Choice
Starting last year during the peak of discourse around Abundance and its left-populist detractors, there came to be this argument that what Democrats needed to do was be rhetorically populist but then govern in Abundance-style pragmatism. The logic was that as sensible as zoning reform and other policies favored by Abundance advocates like myself might be, they lacked emotional punch and so, according to this view, wonky reforms were fine for the under-the-hood mechanics of governing, but anti-business rhetoric should be the party’s emotional core; repealing the chassis rule was fine as a policy, but don’t let that intellectually crowd-out what sounds good at a Bernie Sanders rally.
Some of us tried to sound the alarm that this approach was a mistake and that zero-sum anti-business populism that prioritizes finding someone to blame over becoming a society that builds was always going to be counterproductive. But the siren song of populism....well, let’s just say that there were too many people who didn’t want to put wax in their ears on that one.
How To Fumble At the Five-Yard Line
So then we get to the housing reform package that Congress has voted on and is making its way toward being signed into law. To briefly summarize, this started as the Renewing Opportunity in the American Dream (ROAD) to Housing Act in the Senate which was itself a collection of different housing reform bills. That package was excellent! I was very excited about it going all the way back to when it was voted on in the Senate Banking committee. Then, the House took up their version, the Housing for the 21st Century Act. This too was a great package of housing policy reforms. It even included some things not in the Senate bill such as Ritchie Torres’ idea to have HUD promulgate a model code for point-access blocks, which would accelerate single-stair reform. As of February 9th, when the House passed their bill, there was every reason to believe we were about to get a truly terrific housing bill to the President’s desk to be signed into law.
For months beforehand, we had heard complaints from populists on the right and left about institutional investors, the hedge funds and private equity firms that take up so much space in populist demonology on housing. Trump even had an Executive Order aimed at them and criticized them in his State of the Union. By late February, we started hearing that Warren and her team wanted something about institutional investors to get added to the bill that would harmonize the House and Senate bills. This was an eye-roll inducing bit of political theater to housing policy nerds, but the percentage of homes owned by institutional investors is very small as an overall portion of housing (about 0.65% of single family homes), and if this provision was going to be mostly symbolic, have a bunch of exceptions, and do little real-world damage, we weren’t going to complain too much. But the institutional investor provision that got inserted was not merely symbolic; it was a real manifestation of Blame-thinking instead of Build-thinking.
Once the two housing bills were reconciled into the 21st Century ROAD to Housing Act, all of a sudden there was a new section that had not been there before, Section 901 on institutional investors. This section would prohibit large investors from purchasing single-family homes and force those holding portfolios of more than 350 units to sell them within seven years. It is widely understood that Senator Warren was the driving force behind this language.
It is important to note there is vanishingly little evidence that institutional ownership corresponds to house price increases. In fact, Sun Belt cities like Tampa, Dallas, and Charlotte, which have above-average shares of investor-owned housing, remain among the more affordable metro areas in the country. The people most hurt by housing unaffordability are not being hurt by BlackRock. They are being hurt by our decades-long failure to build enough homes.
Killing Build-to-Rent Is A Serious Mistake
What makes the investor ban not merely ineffective but actively counterproductive is what it does to build-to-rent housing, a market segment in which developers construct new single-family homes specifically for the rental market. This is not private equity firms outbidding families for existing homes; it is private capital financing the construction of homes that would not otherwise exist. This market segment is especially helpful in the context of high interest rates. Build-to-rent now accounts for nearly 10% of all new home construction, up from roughly 3% a few years ago, and represents one of the few segments of the housing market that has been reliably adding supply. Build-to-rent has added 250,000 homes to America’s housing supply over the last five years. This provision, by forcing institutional owners to divest within seven years, would badly undermine this market. Very few firms can underwrite a development project when they face a legally mandated forced sale on a fixed timeline regardless of market conditions. There are about 160,000 build-to-rent units already in the pipeline. That pipeline will not magically get replaced by other builders simply because some politicians decided they didn’t like who owned the business. The result is a bill that uses carrots and sticks to encourage housing supply on one hand while undermining a proven supply-increasing mechanism with the other.
Senator Brian Schatz even took to the Senate floor to suggest that this seven year part of the provision that does so much damage could have been a drafting error. He was, in effect, giving Warren an out to fix this problem and still claim credit for the headline of an investor ban. She did not take it, responding that it was not a drafting error and that “The policy is to block private equity from taking over the single family home, and that is quite deliberate. There are some folks in private equity who don’t like that, but it’s a very deliberate choice.”
This is the Build versus Blame problem in concrete form. The Blame orientation—finding a satisfying villain, generating a rally-ready applause line, demonstrating that you are on the side of regular people against powerful interests—is not cost-free. In this case, it came with a direct policy price: a provision that could reduce the supply of the housing even as it purports to make housing more affordable. The tragedy here is that the underlying bill contains a lot of genuinely good policy. The NEPA streamlining, the Rental Assistance Demonstration expansion, chassis rule repeal, the Build Now Act and more, are real wins. They represent exactly the kind of unglamorous but supply-side work that this newsletter has been pushing for. But they were packaged with a Blame-oriented provision, and that provision was not an accident or an oversight. It was a deliberate choice, driven by a theory of Democratic politics that cares less about crafting smart policy than about finding a convenient pseudo-villain to poke in the eye with a stick.
This is a Preview of Future Traps to Avoid
On top of being tragic in its own right, this episode is a preview of choices that will come before Democrats again and again as we work on cost-of-living policy. In healthcare for example, it might feel good to lash out at insurance companies (and doing that might poll well- I totally grant that point), but doing so is no substitute for addressing our doctor shortage, for making it easier to invent new vaccines, or for increasing the supply of healthcare services in rural areas. In pharmaceuticals, it might feel good to blame drug companies for high prices, and holding them up as villains may poll well. But pharmaceutical companies do not set their own approval timelines; the FDA does. Streamlining the FDA’s drug approval process, expanding accelerated approval pathways, and increasing NIH funding for basic research are the reforms that can actually get more cures to market faster and drive down prices through competition. Lashing out at Pfizer is not a genuine replacement for any of that.
In energy, it might feel good to blame data centers for rising energy costs, but the better way to understand what’s going is that -for a multitude of reasons- we are seeing demand for energy increase and so what we need to do is increase energy supply through permitting reform, an all-of-the-above energy strategy, and better electricity transmission. Whether it’s the Trump administration attacking wind energy or Democrats fighting natural gas pipelines, making it harder for energy companies to produce and move energy is counterproductive.
For each major cost area, focusing on punching some favored villain takes away from focusing on policy reforms that can actually work. Affordability is the core political economy problem in America right now and if Democrats are going to deserve the right to govern, we have to be able to get the policy right on that, and that means having a Build versus a Blame orientation.
-GW