DWB Notes: How the Parties Destroy the Housing Debate

As I write this, I find myself flying to Las Vegas. As I departed out of Indianapolis, I scribbled some notes. Halfway through the flight, I decided to formalize those notes.

When you look down on the city of Indianapolis, you see many of the single-family neighborhoods built between 1950 and 1975. I started pondering the housing shortage, and I considered a few different arguments I've encountered over the last few weeks — from different sides of the political spectrum.

The left-leaning argument: Large firms — both private equity and large property management companies — are buying single-family homes in droves, making it harder for "everyday Americans" to buy a home.

The right-leaning argument: Illegal immigration is causing a sudden influx of demand for housing, which is pushing up home prices and rents for "everyday Americans."

Prima facie, both of these arguments make sense. After all, a large firm might bear more strength in the housing market than a potential single-family home owner. Also, it does make sense that "more people equals more demand," which pushes up home prices.

Both of these arguments are "demand-based problems," meaning they focus on the demand side of the supply-demand equilibrium. I can't help but notice, however, that both arguments directly align with hot-button political ideologies these parties already hold.

Generally, the Right despises the whole notion of illegal immigration (and, for some, the notion of immigration entirely). The Left, obsessed with wealth inequality, holds no love for the term "private equity" or any firm with significant market power.

So I've spent the first leg of this two-leg journey researching these arguments. Do these arguments actually carry water in solving the housing crisis? Or do these arguments just carry water for their overarching political ideologies?

Private equity and investment

Restricting the purchase of single-family homes by private equity firms has become a favorite issue of the "local Left."1

The argument goes something like this: private equity can outbid individual buyers, leveraging (ironically) all-cash offers at scale. Then, they convert the homes into rentals, which drives up the price of homes and suppresses the rate of homeownership.

These policies are generally supported with a series of precarious facts. My favorite one came from Congressman Josh Riley, a Democrat representing the New York 19th Congressional District, who sponsored legislation to block Wall Street investors from buying homes: “Nearly 27% of all homes sold in the first quarter of 2025 were bought by investors.”2

Is that true? Sort of, not really.

It is true they are buying up homes, and it is true they "exert considerable influence" in many American cities. Nevertheless, their share of new home purchases last year represented "one-fifth that of mom-and-pop investors."3

Does this hurt affordability? Unsure. Two researchers in Florida actually found that an increase in "mom-and-pop investors" in a neighborhood will actually decrease neighboring home values.4

Caitlin Gorback, an economist at the University of Texas at Austin, released a working paper on this very issue.5 While she granted in a recent Planet Money episode that it's difficult to trace every single home sale back to the eventual owner or investor in shell companies (and her dataset stops in 2022), her analysis found the following:6

  • The ownership share for big Wall Street firms as of 2022 is about 0.3% of all housing units in the United States.
  • There is significant geographic concentration in areas along the Sun Belt, such as Atlanta, Charlotte, Houston, and Phoenix.
  • There is evidence, though it's limited, to suggest that as big investors bought additional homes, rents actually decreased.

Why? Gorback explains there is a diversification effect that plays a role. Here is her quote to Planet Money:

"You have a kind of a diversification effect in that the people who move in, the renters who move in to neighborhoods, tend to be younger, more minority status, lower wealth. And so that's really a story of rentals unlocking neighborhood opportunity for a subset of renters who couldn't have bought into that neighborhood. And so if those renters look very different from the incumbent homeowners and they value different local goods and services, then you end up seeing outmigration of some of the incumbent homeowners as well."

The bottom line is this: it seems doubtful that banning large institutional investors will solve America's housing crisis.

What seems more likely is this policy seeks out to solve a political goal of the Democrats: sow more distaste for Wall Street, wealthy Americans, and other groups they view as holding an unequal amount of wealth.

Immigration

The American Right is changing over time. In previous blog posts, I've addressed the changing views of the American Right. What was once a conservative GOP is changing toward a populist GOP. This shift is more than a decade in the making.

Part of that shift manifests as a stark opposition to immigration. For some on the Right (think "Mitt Romney" or "Chris Christie"), it's a fierce objection to illegal immigration; for others — and for a growing number — it's an opposition to immigration more generally.

So it's not surprising that a number of Republicans blame the housing affordability crisis on an influx of undocumented immigrations.

The data suggest, however, that illegal immigration plays little role in the housing affordability crisis. Note that I did not say no role but rather little role.

For example, a published analysis from three professors (two at Texas A&M, one at the University of Maine) showed there was "no significant relation between unauthorized immigrants and house prices by state."

Additionally, the Joint Center for Housing Studies at Harvard University showed that immigrants do play an important role in household growth and housing demand. However, they also wrote that "when rents and home prices spiked after the onset of the pandemic, immigrants were still not driving household growth."7

Steve Camarota, working for the pro-restriction Center for Immigration Studies, testified to Congress that "increases in the immigrant share of a metro population are associated with higher housing costs," but he admitted his data include immigrants in the country legally and illegally.8

Last year, a HUD report showed similar results, but that data, too, conflated illegal immigrants with anyone not born in the United States.9 This ended up being a classic case of "Data do not lie, but data can lie to you."10

So, what's the biggest effect of immigration to the housing market? Construction.

White workers make up the majority of the construction employment in the United States at 57%. Right behind them? Hispanic workers. Their share is nearly one-third of the market, and in a 13-year period, it grew by more than 1.3 million jobs— a 50% increase.11

A restriction of immigration might limit housing demand, but it will also tighten the construction market, making it harder to build quickly, efficiently, and cheaply.

In other words, Republicans might actually be unintentionally working against affordability by using immigration as the central talking point in the housing market.

The game of supply and demand

Politicians love to talk about demand. Why? The policies "feel" good. They are often sexy solutions that sound good to the average person. The problem is that they often do not work. In addition to the aforementioned demand-based solutions to the housing crisis, here are a few oft-discussed solutions (all based on demand):

  • First-time home buyer downpayment or tax credit programs
  • Rent voucher programs
  • Programs to subsidize interest rates

In some way, all of these programs involve giving money to people. That is a market solution, but it focuses solely on the demand side of the equation.

Some localities also try to interfere with markets through price ceilings (think: rent control), aimed at keeping costs low. In practice, rent control (or the hilariously named "rent stabilization") initiatives often choke supply of housing, hurting the equilibrium price. In New York, a number of units sit vacant because "operating costs exceed legal rents." In other situations, units require major renovations and the prevailing, legally controlled rent cannot increase adequately to make the renovation worth the high cost.12

All of these "solutions" are either ineffective or actually harmful. Our focus needs to be in long-term housing supply.

How do we do this?

  • Make it easier to build. Create massive permitting reform.
  • Reform zoning codes to permit more "middle" housing (think: duplexes, triplexes, townhomes, etc.)
  • Reduce construction barriers
  • Add more construction jobs
  • Incentivize ADUs or other alternative rental units (such as renting out a bedroom)
  • Eliminate unnecessary requirements in zoning codes, such as parking mandates or lot size mandates

The Left and the Right

We must resist the urge to make politics an emotional game. Republicans — on the whole — dislike illegal immigration. Democrats — on the whole — are bothered by the power held by the wealthy in our society. Those two things can both be true, and we can still have more genuine discussions about housing policy.

To do this, our politicians need to keep their minds open—to remember that their world view should be centered on a series of values, not on a political ideology or a series of policies.

Both Democrats and Republicans say they want the same thing when it comes to housing: affordability. Targeted, intelligent deregulation can get us closer to that point.

The good news is that this does not start in Congress. It starts at the local level. Nearly all zoning is controlled by hyper-local entities, such as your city council or town government. That gives you more power to make genuine change. I hope the voice of supply-side affordability becomes stronger in the years to come.

Notes and Sourcing

Footnotes

  1. I define the "local Left" as the legislative and advocacy bodies that exist in many major cities. In most major cities, these are dominated by the Left. It is likely prudent to note that restricting private equity is no longer isolated to just the local Left. Carmel and Fishers — both Indianapolis suburbs led by moderate Republicans — both enacted legislation to create a "rental cap" targeted at large investors. The state legislature is currently taking aim at that. ↩

  2. See Politifact. ↩

  3. See the Federal Reserve Bank of St. Louis. ↩

  4. See Ihlanfeldt and Yang. ↩

  5. See the working paper here. Note this is an incomplete draft. ↩

  6. See the Planet Money episode and transcript here. ↩

  7. See Riordan Frost. ↩

  8. See Steven A. Camarota's testimony. ↩

  9. See the HUD report. ↩

  10. Note that when defending the HUD report, it cited evidence from Camarota's research. ↩

  11. See the National Association of Home Builders analysis. ↩

  12. See the City Journal report. ↩