A friend of mine recently asked a straightforward question about the Senate’s newly passed build-to-rent (BTR) restrictions: why would lawmakers require investors to sell BTR communities after seven years?

The answer is simple. Some senators believe large institutional investors, like pension funds, insurance companies, and investment funds, should not own single-family rental housing. The legislation requires those investors to sell their homes after seven years.

At first glance, the policy might seem reasonable. Many Americans worry that large investors are buying homes and making it harder for families to become homeowners. Policymakers understandably want to protect opportunities for households that hope to buy their first home.

But the proposal runs into trouble because it treats all single-family rentals as the same type of housing. They are not.

In particular, the bill misunderstands how build-to-rent communities work. And that misunderstanding could lead to fewer homes being built at a time when the United States already faces a severe housing shortage.

The Difference Between Scattered Homes and Build-to-Rent Communities

When people hear about investors owning single-family homes, they often picture companies buying houses in existing neighborhoods, sometimes competing directly with families trying to purchase those homes.

That practice did occur after the financial crisis, when large investors purchased thousands of distressed homes across the country, turning these houses into rental properties because the ownership market collapsed.

Build-to-rent communities are something entirely different.

These developments are purpose-built rental neighborhoods constructed from the ground up. Instead of buying houses one at a time, developers assemble land and build an entire community at once, often dozens or hundreds of homes designed specifically for renters. Sometimes these properties are standalone, and other times they are part of mixed-income communities.

Residents sign leases rather than mortgages. The neighborhood is professionally managed. Maintenance and services are coordinated across the entire property.

In practice, these communities function much more like garden-style apartment complexes than traditional single-family housing. The main difference is architectural. Instead of two- or three-story apartment buildings with carports spread across a multi-acre site, the homes are detached or townhome-style units arranged across a multi-acre site.

Economically, however, the model is identical to multifamily housing. People rent their homes. The property is owned and managed by a single entity. And the development is financed and operated as a unified rental community.

This distinction matters because it shapes how these communities are built.

How Build-to-Rent Communities Get Built

Most rental housing developments follow a standard process. A developer identifies land, secures financing, and builds the project. Once construction is complete, the developer often sells the property to a long-term owner that will operate the community for many years.

For apartment buildings, long-term owners are often institutional investors such as pension funds, life insurance companies, and real estate investment trusts (REITs). These institutions manage large pools of capital and seek stable, long-term investments that generate predictable income.

Multifamily rental housing fits that profile well, and build-to-rent communities have become a critical part of this asset class. Developers rarely intend to hold these projects indefinitely. Instead, they build the neighborhood and sell it to a long-term owner capable of managing the property over time.

This developer-to-owner pipeline is an essential part of the housing production process. If developers cannot identify a buyer for a completed project, it becomes much harder to secure financing and begin construction in the first place.

In other words, long-term owners do not just operate rental housing, they also help make new housing possible.

What the Seven-Year Rule Would Do

The Senate bill requires institutional investors to sell new, purpose-built single-family rental homes after seven years. That rule may appear manageable if applied to scattered individual homes. An investor could simply sell those houses to individual buyers.

But the rule works very differently when applied to build-to-rent communities.

These communities are designed and financed as unified rental properties. They are not easily divided and sold house by house. Their value depends on being owned and managed as a single rental community1.

More importantly, the economics of the investment depend on long-term ownership.

Pension funds and life insurance companies typically invest with time horizons measured in decades. Their investment strategies depend on stable, predictable income streams over long periods.

A forced sale after seven years disrupts that model.

Faced with that restriction, many long-term investors may avoid these projects altogether. If they cannot hold the property long enough for the investment to make sense, they simply will not buy it.

And if developers cannot identify long-term buyers, many projects will never be built.

Why This Matters for Housing Supply

The United States already faces a significant housing shortage. For more than a decade, the country has built fewer homes than needed to keep up with population growth and household formation.2

That shortage has contributed to rising rents, higher home prices, and fewer housing options for families across the country.

Build-to-rent communities have become a bright spot in today’s housing market. At a time when homebuilders are producing few starter homes, these developments are helping meet the needs of young families across the country. They add new rental housing in markets where demand is high and supply is limited, giving households the space and privacy of a house even if they are not ready, or able, to buy one. For families with children, workers relocating for jobs, or households saving for a down payment, these communities offer an option that is increasingly hard to find.

Restricting the ownership of these communities reduces the ability to build them. The likely result is straightforward: fewer rental homes built, tighter housing markets, and higher rents. Ironically, a policy intended to improve housing affordability could end up making the problem worse.

A Better Approach

Concerns about housing affordability and institutional investment deserve serious attention. Policymakers should carefully examine how housing markets function and consider ways to expand access to homeownership.

But solutions should be designed with a clear understanding of how housing is actually produced.

Build-to-rent communities are not investors buying up existing homes. They represent new housing supply, in other words homes that would not exist if developers had not built them. Policies aimed at restricting investor purchases of existing homes should not unintentionally prevent the construction of new rental communities.

Several amendments were proposed during the legislative process that would have addressed these concerns while allowing build-to-rent communities to continue being built. Those changes would have preserved policymakers’ goals while avoiding unintended consequences for housing supply. Ultimately, however, those amendments were not adopted before the bill passed.

Housing affordability is one of the most pressing economic challenges facing American families today. Meeting that challenge will require expanding housing supply in meaningful ways. If lawmakers want to make housing more affordable, the path forward is clear: build more homes.

But building homes requires long-term investment, and long-term investment depends on clear rules. The Senate bill that passed leaves important provisions ambiguous. Relying on informal assurances about how those ambiguities will be interpreted, especially when a future administration could take a very different view, risks chilling the capital needed to finance housing.

What the law now needs is a clean technical clarification of how it applies to purpose-built rental communities - not a winking agreement that regulators will avoid the most damaging interpretation.

Policies that discourage new construction move the country in the opposite direction. If the goal is to make housing more affordable, policymakers should move quickly to clarify the law so that purpose-built rental communities can continue to be built.

1 The only difference between a build to rent community and an apartment building is that one is vertical and the other is horizontal. They both provide affordable places to live, and isn’t that the point?

2 Freddie Mac and Up for Growth estimate the United States faces a housing shortage of 3.7 - 3.8 million homes, reflecting years of underbuilding relative to population growth and household formation.

Originally published in Bob Simpson's Affordable Housing Handbook, March 24, 2026.