Why Hochul’s crackdown on real estate investors makes absolutely no sense

Does it seem like Gov. Kathy Hochul has been in your face lately?

Blame the presidential election: Donald Trump got a lot more votes in New York than he did in 2020, giving Hochul reason to worry about her own race next year.

In response, she has resorted to populism. Hochul has literally been running around the state saying, “I’m putting money back in your pocket.” If only she had stopped there.

Part of her strategy has been to scapegoat the real estate industry, complete with scare tactics and inflammatory rhetoric.

Specifically, she is attributing the high cost of housing in part to institutional investors, who she claims are bidding up home prices. On Friday she amped up her propaganda, warning in a press release about private equity “cornering the one- and two-family housing market in New York.”

It’s an applause line that gets attention but is, to put it bluntly, hogwash.

Making matters worse, Hochul is taking action against this fake problem. She has proposed rules to hinder large investors’ homebuying, including a 75-day waiting period before they can bid on a home listed for sale, and is using creative language to create a false impression without outright lying. Read carefully:

“Hedge funds, private equity firms and other institutional investors, have played an increasingly significant role in the single-family and two-family housing market in recent years,” Hochul claimed. “These large entities can often outbid prospective homeowners.”

“Can often?” What does that even mean? Do they or don’t they? (Spoiler alert: They don’t.)

In her initial announcement, Hochul declared that “shadowy private equity giants are buying up the housing supply in communities across New York, leaving everyday homebuyers with fewer and fewer affordable options.”

Her administration has not produced any evidence that this is happening — because it isn’t.

Last week, nearly two months after Hochul’s proposal, her housing chief, RuthAnne Visnauskas, was asked at a state budget hearing how many institutional investors own single- and two family homes in the state. She said mayors in Albany, Rochester and other cities have told her these buyers are acquiring “hundreds” of them, but admitted she has no data.

She was asked if institutional investors own thousands of these homes (out of more than 8.7 million statewide). Maybe, the housing commissioner replied, but again asserted that there is no data. Actually, there is.

Here are the facts:

Nationwide and in the New York metro area, for every six homes of all types purchased in the third quarter of 2024, investors — mostly mom-and-pops — bought one. That’s about the same share as in 2018 and 2019, Redfin reported.

About 95 percent of single-family rentals are owned by small investors and only about 3 percent by large ones. That’s 3 percent of single-family rentals, which are a small fraction of the market.

Another important point: Investors tend not to outbid individuals for homes. “Buy high, sell low” is not a very effective business strategy.

Some iBuyers did spend freely during the pandemic, when borrowing costs were low and demand for houses high, but they lost billions of dollars and abruptly stopped.

Investors who buy one- and two-family homes typically look for fixer-uppers that can be improved and sold at a profit or rented out. Individuals, however, prefer homes in move-in condition — such as those fixed up by these investors.

What Hochul perceives as a competitive scrum is actually a symbiotic relationship.

As for investors’ “increasingly significant role,” their share of home purchases has actually declined in the past two years — falling to 16 percent from 21 percent, according to Redfin. If large investors are 3 percent of that 16 percent, that means they are behind 1 of every 200 home purchases.

Another popular myth is that single-family rentals are denying Americans the dream of homeownership. It’s more likely that too few houses are for rent. Demand for houses in high-performing school districts is strong from people who are not ready to set down roots, lack the down payment or credit history to get a mortgage, or just prefer the convenience of renting.

The governor’s populist performance is quite a turnaround from 2023, when she told New Yorkers the hard truth about why home prices are high: Demand has outpaced supply.

Pro-housing advocates cheered, but Hochul’s enemies ginned up a political backlash that forced her to retreat. Two years and one election later, her sobering-reality narrative has been replaced by a boogeyman — private equity — and a feel-good pill to vanquish it.

Kathryn Brenzel contributed reporting.