Key Takeaways
- • Treasury has proposed Phase 1 rules implementing section 1001 of the 21st Century ROAD to Housing Act, which bars large institutional investors from buying single-family homes, with the prohibition taking effect January 7, 2027.
- • A large institutional investor is defined as a for-profit entity that controls investment in at least 350 single-family homes, alone or with others, directly or indirectly.
- • Four statutory exceptions apply (build-to-rent, renovate-to-rent, homeownership, and programs to boost homeownership), each requiring written policies adopted before the purchase.
- • Enforcement carries a maximum civil penalty of the greater of $1 million or three times the purchase price per violation.
- • Treasury says reliable data are not yet available on how many investors and entities may be affected, and later rulemakings will address additional exceptions, compliance, reporting and enforcement.
Summary
The U.S. Treasury Department has proposed a rule explaining how the statutory ban on large institutional investors purchasing single-family homes will operate, according to Legis1 reporting. The prohibition derives from section 1001 of the 21st Century ROAD to Housing Act and takes effect January 7, 2027. Treasury is using this rulemaking, described as Phase 1 of a phased process, to define covered investors and set out how exceptions will work before the effective date. Treasury Secretary Scott Bessent said the department sought to give families a fair chance to buy homes in their communities.
The ROAD Act defines a large institutional investor as a for-profit entity that invests in, owns, rents, manages, or holds single-family homes and, alone or with others, directly or indirectly controls investment in at least 350 of them. To qualify for any of the four statutory exceptions (build-to-rent, renovate-to-rent, homeownership, and programs to boost homeownership), an investor must have written policies or procedures adopted before the purchase; after-the-fact characterization does not qualify. Under the renovate-to-rent exception, a structurally deficient home may be purchased only if improvements total at least 15 percent of the structure's purchase price. A safe harbor applies where at least 10 percent is spent on structural or core system elements and all material deficiencies in those elements are resolved; cosmetic work such as painting, flooring and appliance upgrades does not count.
Homeownership program contracts must provide positive rent reporting to credit bureaus at no charge to the renter, a right to purchase at fair market value minus the investor's meaningful financial support, and automatic transfer of obligations to any later large institutional investor purchaser. Boost-homeownership contracts must include positive rent reporting, a right of first refusal with a 30-day first-look period, meaningful financial support, and the same obligation transfer. To limit circumvention through layered ownership, Treasury proposed a passive-investor test: an entity is not counted toward the 350-home threshold through a second entity only if none of its directors, officers, employees or designees serve as a director or officer of that entity, and it holds no right to make, direct or prevent decisions on purchase, sale, holding, leasing, renovation or management of a home.
On enforcement, the maximum civil penalty is the greater of $1 million or three times the purchase price. A single transaction violating the prohibition with respect to multiple large institutional investors counts as one violation, while purchases of different homes remain separate violations. Treasury estimates the recordkeeping burden at 100 to 300 respondents at one hour per response, and states that reliable data on the number of affected investors are not currently available.
The ROAD Act defines a large institutional investor as a for-profit entity that invests in, owns, rents, manages, or holds single-family homes and, alone or with others, directly or indirectly controls investment in at least 350 of them. To qualify for any of the four statutory exceptions (build-to-rent, renovate-to-rent, homeownership, and programs to boost homeownership), an investor must have written policies or procedures adopted before the purchase; after-the-fact characterization does not qualify. Under the renovate-to-rent exception, a structurally deficient home may be purchased only if improvements total at least 15 percent of the structure's purchase price. A safe harbor applies where at least 10 percent is spent on structural or core system elements and all material deficiencies in those elements are resolved; cosmetic work such as painting, flooring and appliance upgrades does not count.
Homeownership program contracts must provide positive rent reporting to credit bureaus at no charge to the renter, a right to purchase at fair market value minus the investor's meaningful financial support, and automatic transfer of obligations to any later large institutional investor purchaser. Boost-homeownership contracts must include positive rent reporting, a right of first refusal with a 30-day first-look period, meaningful financial support, and the same obligation transfer. To limit circumvention through layered ownership, Treasury proposed a passive-investor test: an entity is not counted toward the 350-home threshold through a second entity only if none of its directors, officers, employees or designees serve as a director or officer of that entity, and it holds no right to make, direct or prevent decisions on purchase, sale, holding, leasing, renovation or management of a home.
On enforcement, the maximum civil penalty is the greater of $1 million or three times the purchase price. A single transaction violating the prohibition with respect to multiple large institutional investors counts as one violation, while purchases of different homes remain separate violations. Treasury estimates the recordkeeping burden at 100 to 300 respondents at one hour per response, and states that reliable data on the number of affected investors are not currently available.
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