The Housing Fix Nobody is Building

Min 1

President Trump spoke at the World Economic Forum in Davos on January 21st, detailing his administration's housing affordability strategy.

The proposals focus on lowering mortgage rates through government bond purchases and banning large institutional investors from buying single-family homes.

Redfin CEO Glenn Kelman responded during a CNBC appearance days later calling the announcements "mostly Band-Aids."

The fundamental issue, according to Kelman and a chorus of housing economists: America needs more homes. Everything else treats symptoms while the disease spreads.

Morgan Stanley analysts went further in research released January 18th, characterizing Trump's directives as only "modestly helpful for homeowner affordability" and warning they amount to marginal adjustments rather than market cures.

Here's what investors need to understand...

Government policy aimed at lowering rates and restricting certain buyers might help on the margins. But when housing inventory sits well below normal levels in most major markets, demand-side stimulus without supply-side solutions just pushes prices higher.

The Trump administration directed Fannie Mae and Freddie Mac to purchase mortgage-backed securities, temporarily pushing rates below 6% after the announcement.

Markets reacted positively—mortgage spreads tightened and applications jumped. But Morgan Stanley lowered their year-end mortgage rate forecast only slightly and kept their home price appreciation prediction unchanged.

Min 2

The numbers reveal why economists are skeptical.

Institutional investors own roughly 1% of total single-family housing stock according to American Enterprise Institute research. Even in markets with high concentrations of investor-owned properties, large institutions represent a small fraction of total buyers.

Data shows that over 90% of investor-owned homes were purchased by individuals owning fewer than a dozen properties. The corporate buyers Trump's policy targets—firms like Blackstone and major REITs—control a meaningful but not dominant share. Banning them from future purchases won't flood markets with new inventory because they're not required to sell properties they already own.

Meanwhile, the National Association of Home Builders released a detailed plan outlining what's actually needed to boost supply.

Their recommendations include eliminating excessive regulations, promoting skilled trades careers, fixing building material supply chains, and making it easier for developers to finance new construction. None of these appeared in the Davos speech.

Here's the investor payoff: when government policy focuses on demand stimulus without addressing supply constraints, prices rise faster than they would otherwise.

More buyers competing for the same limited inventory means sellers capture the benefit through higher prices. If you own rental properties in tight inventory markets, these policies work in your favor even if they don't solve affordability.

Min 3

The dollar impact becomes clear when you examine what happens to property values in supply-constrained markets receiving demand stimulus.

A market with inventory well below normal levels that suddenly sees mortgage rates drop and more buyers qualifying experiences price acceleration, not moderation.

Consider markets like Hartford where inventory sits over 60% below normal. If government bond purchases keep rates near 6% and slightly more buyers enter the market, those buyers compete for severely limited supply.

Properties that might have appreciated modestly instead see stronger gains as bidding competition intensifies.

Housing economists at Apollo put it bluntly: home buying conditions are "not good" with demand slowing because of high prices and high rates, but supply remains constrained by the lock-in effect keeping existing homeowners from selling.

The bottom line: falling demand and rising supply of new homes are putting downward pressure on prices—but that pressure isn't strong enough to offset decades of underbuilding.

Translation: if you own assets in supply-constrained markets, you benefit from policies that stimulate demand without adding supply. Your properties appreciate faster because more qualified buyers chase the same limited inventory.

Min 4

Smart investors are positioning for the unintended consequences while policy analysts debate effectiveness. The mortgage bond purchase program might keep rates relatively low through mid-year, but it won't magically create new inventory.

Markets with severe supply shortages will see that rate benefit translate to higher prices, not improved affordability.

Individual investors building rental portfolios should focus on markets where new construction remains weak. These are the markets most insulated from supply-side pressure.

When builders aren't adding significant inventory and existing homeowners won't sell due to low locked-in mortgage rates, any demand stimulus flows directly into higher valuations.

Large institutional investors face different dynamics.

If Trump's proposed ban passes Congress—still uncertain—big players lose access to single-family purchases. But the policy exempts newly built homes, potentially accelerating build-to-rent development owned and managed by large institutions. The unintended consequence: more professionally managed rental communities competing with individual landlords.

The risk for investors? If the administration eventually shifts focus to supply-side solutions—deregulation, builder incentives, faster permitting—markets could see meaningful inventory increases. That would pressure prices and cap appreciation.

Make sure to monitor Commerce Secretary Howard Lutnick's conversations with builders about preferred incentives. If serious supply-side policies emerge, markets will react.

Min 5

This policy environment creates opportunity for investors who understand the supply-demand imbalance.

Properties in markets with strong job growth, limited new construction, and low inventory will outperform regardless of what Washington does about mortgage rates or corporate buyers.

The White House focuses on making homes more affordable for first-time buyers, but Trump also stated he wants existing homeowners "to continue to have a big value" in their properties.

Joel Berner, senior economist at Realtor.com, pointed out the obvious contradiction: you can't have both. Either prices fall and affordability improves, or prices rise and homeowners build equity. Pick one.

For rental property investors, the contradiction works in your favor. Politicians face pressure to help both buyers and homeowners simultaneously—an impossible task.

The likely outcome: incremental policies that don't meaningfully change market dynamics, allowing supply-constrained markets to continue generating strong returns for property owners.

Takeaway

Trump's housing policies announced at Davos focus on demand-side stimulus without addressing the fundamental supply shortage.

Morgan Stanley expects the mortgage bond program to lower rates only modestly and have minimal impact on home price appreciation.

Translation: markets with tight inventory won't see meaningful relief from these policies. More buyers qualifying at slightly lower rates will compete for the same limited supply, potentially accelerating price growth rather than moderating it.

The investment strategy is straightforward.

Focus on markets where inventory remains well below normal and new construction lags demand. These markets benefit most from demand stimulus policies while remaining insulated from supply-side pressure.

Watch for policy shifts toward supply solutions—builder incentives, regulatory reform, faster permitting. If the administration moves beyond demand-side Band-Aids to actual supply expansion, market dynamics change.

Until then, supply-constrained markets continue rewarding property owners while frustrating first-time buyers.