Legislation that limits the ability of large institutional investment firms to buy single-family homes, designed, so its framers claim, to help ordinary homeowners, carries implications for family offices.

Recently enacted US legislation banning large institutional investors from owning residential properties adds to compliance tasks on groups such as family offices, potentially reducing deal flow, a recent paper from law firm Squire Patton Boggs says. 

On July 11, the 21st Century ROAD To Housing Act entered law; the section titled “Homes Are for People, Not Corporations” curbs large institutional investors owning single-family homes, for example, investors owning 350 or more properties. Lawmakers said the law is designed to protect ordinary homebuyers.

The law firm said that although most family offices are unlikely to be considered large institutional investors (LIIs) and subjected to the law’s purchase provisions, there are compliance and enforcement impacts. 

The Act requires LIIs to submit annual reports to Congress regarding their single-family home holdings. Although these reporting requirements apply only to LIIs, family offices invested as limited partners in funds sponsored by LIIs should be aware that some of the associated compliance costs may result in higher management fees, fund expenses or similar charges, the law firm said. 

The Act also sets up a renter outreach program, administered by the Department of Housing and Urban Development (HUD). Renters may report disputes and potential violations of the Act involving properties owned by LIIs. HUD is also authorized to investigate certain complaints, request information from covered investors, coordinate with other agencies and publish annual reports summarizing the information received. 

“The increased oversight created by this program, together with the Act’s purchase restrictions and congressional reporting requirements, are likely to contribute to the heightened regulatory scrutiny discussed in our prior post and may continue to affect deal flow involving large single-family home portfolios,” Squire Patton Boggs added.