Key facts
- The 21st Century ROAD to Housing Act has passed, removing provisions that threatened the build-to-rent (BTR) industry.
- Earlier versions of the bill would have banned institutional investors from purchasing existing BTR homes and imposed a seven-year sell-off requirement.
- These provisions had significantly halted new capital investment in BTR projects.
- The final legislation exempts new BTR supply while banning the acquisition of existing homes by large institutional investors.
- A coalition of industry groups has asked the Treasury Department for clarification to ensure BTR communities are not negatively impacted by the law.
- The passage of the act is expected to unlock capital and allow BTR projects to move forward, contributing to housing supply.
The build-to-rent (BTR) industry is experiencing renewed optimism following the passage of the 21st Century ROAD to Housing Act, which removed provisions that had created significant legislative uncertainty and frozen capital investment. Earlier versions of the bill included measures that would have denied BTR communities an exemption from an institutional investor ban and imposed a seven-year sell-off requirement on new developments, making it difficult for investors to achieve returns.
Alex Chalmers, managing partner at Material Capital Partners, stated that these provisions "completely shut down the market" and halted new project pipelines. However, with the removal of these clauses, capital is now beginning to flow back into BTR projects. Chalmers noted that Material Capital Partners can now move forward with at least five projects expected to create close to 1,200 new housing units within the next 18 to 24 months.
Tony Julianelle, CEO of Atlas Real Estate, indicated that investors had not abandoned the sector but were waiting on the sidelines for certainty. He believes BTR is a lasting solution to meet housing demand, and capital is now actively available. The legislation defines single-family homes broadly but exempts newly built, renovated, or converted homes, as well as those in BTR or homeownership programs.
Despite the short-term clarity, lingering concerns exist regarding the Department of the Treasury's interpretation of the law's exemptions. The act empowers the Treasury to levy significant penalties on large institutional investors (owning at least 350 single-family homes) for purchasing nonexempt properties. There is a risk that the Treasury's regulatory authority could expand or that its interpretation might deviate from congressional intent.
In response, a coalition of trade organizations, including the NMHC, MBA, NAA, NAHB, NRHC, and Nareit, submitted a letter to the Treasury on July 14. They requested clarification to ensure that BTR communities, which they argue are clearly exempt, are not inadvertently swept into the ban. The coalition seeks regulatory guidance that upholds the legislation's intent to foster housing supply.