Legislators are trying to block large corporations from buying up rental properties. They should be asking why corporations are the only ones who are willing to invest in rental properties these days.

There’s a new bipartisan bill in Washington that should make everyone pause. Normally, bipartisan efforts are a good thing.

But not always.

In this case, smart lawmakers are missing the forest for the trees.

Republican Sen. Josh Hawley and Democratic Sen. Jeff Merkley have teamed up to introduce legislation banning large investment funds — those with more than $150 million in assets — from buying single-family homes. President Trump echoed the sentiment in his State of the Union, arguing that Wall Street is “stealing away the American dream” by paying cash for houses and turning them into rentals.

It’s politically potent. The villain is obvious. Big corporations. Deep pockets. Families outbid at the closing table.

But what if lawmakers are solving the wrong problem? Or worse — what if the policies of the last five years helped create the very corporate landlord market they now want to dismantle?

Let’s go back to 2020.

During COVID, eviction moratoriums were imposed at the federal and state level. In many places, landlords could not remove non-paying tenants for over a year, sometimes longer. Rental assistance programs were slow to distribute funds. Courts were backlogged. Meanwhile, property taxes, insurance premiums, utilities, and maintenance costs did not pause.

Large institutional investors had balance sheets. They could absorb losses across thousands of units.

Small landlords — the mom-and-pop owners with two or three rental properties for supplemental income — often could not.

For a corporate fund, a non-paying tenant is an accounting problem. For a retiree who owns a duplex, it can wipe out a year’s income.

Progressive lawmakers were blunt about the tradeoff: housing stability for tenants mattered more than investor returns. And in a crisis, that may be an understandable moral instinct.

But like most progressive economic policies, extremely short-sighted. Housing markets don’t respond to moral instincts. They respond to risk.

Before COVID, small-scale rental ownership was widely seen as one of the safest long-term investments in America. Contracts were enforceable. Rent flowed monthly. Vacancies were manageable.

COVID introduced something new: political risk.

The realization that, in any situation it deems as an “emergency,” government could suspend enforcement of private rental contracts for extended periods.

Even if you agree the moratoriums were necessary at the time, the precedent changed the risk calculus. And risk changes behavior.

Between 2020 and 2023, small landlords disproportionately sold properties. Institutional buyers stepped in. Nationally, large investors own about 3.8% of single-family rental homes. But in certain markets — Atlanta, Charlotte, parts of Arizona — their share is far higher.

Meanwhile, rents rose sharply.

Now lawmakers are pointing to corporate ownership as a primary culprit and proposing bans.

But ask yourself: if owning rental property has become politically volatile — if eviction can be suspended for months, if courts can stall, if emergency rules can override contracts — who is best positioned to tolerate that risk?

Not retirees.

Not middle-class families with one extra property.

It’s firms with legal departments and diversified portfolios. If you increase regulatory risk, you naturally concentrate ownership among those able to absorb it.

That doesn’t mean corporate investors are innocent actors. In some hot markets, they did bid aggressively and compete directly with first-time buyers. In certain metro areas, that has mattered.

But zoom out. The deeper driver of America’s housing crisis isn’t who owns homes. It’s how few we build.

Construction collapsed after the 2008 financial crisis and never fully recovered. Zoning laws in many cities make dense development nearly impossible. Permitting timelines stretch years. Goldman Sachs estimates the U.S. is millions of homes short of where it needs to be.

You can ban investors tomorrow and still face a structural shortage.

The more interesting policy question is this: Did emergency tenant protections, however well-intentioned, unintentionally accelerate consolidation in the rental market?

And if so, is the answer to ban large investors — or to restore confidence for small ones?

If lawmakers truly want more diverse ownership, they might consider guardrails that stabilize risk rather than simply restricting buyers. Clear limits on future eviction moratoriums. Faster rental assistance deployment during emergencies. Government-backed rent insurance during declared crises.

Markets are shaped by incentives. During COVID, the incentive signal changed. Risk went up. Small players exited. Large players expanded. Now Washington wants to reverse the outcome without examining the cause.

The housing crisis is real. Homeownership feels further out of reach for many families than it did a generation ago. But the story isn’t as simple as Wall Street versus the American dream.

And before we pass sweeping bans, we should at least ask whether we’re treating the symptom — or the side effect of our own decisions.

(Contributing writer, Brooke Bell)