Newsom pivots to populism

Newsom plans to say during his State of the State address to lawmakers on Thursday that he wants to work with them to regulate the practice of investors buying up large stocks of housing to rent out, forcing California residents to compete with them to afford buying a home, according to the governor’s office.

Proposals could include “enhanced state oversight and enforcement and potential changes to the state tax code,” according to the governor’s office.

“When housing is treated primarily as a corporate investment strategy, Californians feel the impact,” a source in the office said. “Prices go up, rents rise, and fewer people have a chance to buy a home.”

That sounds similar to a proposal Trump made on his social media platform Truth Social on Wednesday. The two previously closely aligned on policy related to clearing of homeless encampments. 

“I am immediately taking steps to ban large institutional investors from buying more single-family homes,” the president wrote, sending stock prices of major publicly traded residential investment firms plummeting. He urged Congress to put the proposal into law and promised to unveil additional housing policy proposals at the World Economic Forum summit in Davos, Switzerland later this month.

Newsom is stopping short of calling for an outright ban on institutional investors’ ownership, though the source said he will seek to “curb” it with the goal of making home ownership more affordable for California residents. 

He hasn’t yet proposed anything concrete. Whatever Newsom seeks to do, he’ll need the approval of the state legislature.

Trump, for his part, did not offer any details about his proposal, such as how institutional investors would be defined under the proposed law or why he targeted single-family homes in particular. The White House’s press office did not respond to an email with those questions. 

The twin announcements come after years of long-shot efforts by California progressives to address a surge in companies buying up single-family housing stock in the wake of the Great Recession. The issue has been the subject of renewed anxiety in post-fire Los Angeles, where a recent report by RedFin showed investors (loosely defined as any buyer with a name that includes “LLC,” “Inc” or “Corp”) have purchased 27 of 61 burned vacant lots that sold in Altadena — more than 40%. 

Asked about that report in an interview on MS Now this week, Newsom said he had signed an executive order last year seeking to protect homeowners who find it too expensive to rebuild from falling for “predatory” lowball offers for their properties. But he acknowledged “the broader market conditions are challenging.”

The proposals mark new territory for Newsom’s housing affordability platform. The governor, now in his final year in office, has spent most of the past seven years focused on boosting construction. It’s a pivot toward populism for the governor, who is widely expected to run for president in 2028.

Blaming deep-pocketed investors for the nation’s housing woes has become an increasingly ideological-spanning exercise in recent years, with politicians as diverse as New York Rep. Alexandria Ocasio-Cortez and Vice President JD Vance championing the cause.

Shortly after Trump’s post, Republican Sen. Bernie Moreno of Ohio, an enthusiastic supporter of the president, promised to introduce legislation in his own post on X.

Is this actually a problem in California?

Many housing industry professionals, economists and policy researchers are skeptical.

“It’s really hard to buy a house right now so people are looking for someone to blame for that, but I think (institutional investors) are more of a symptom of the affordability crisis than they are a perpetuator of it,” said Caitlin Gorback, a University of Texas at Austin economist who has studied investors’ effect on local real estate markets.

Research on the topic is mixed, though most analyses have found that by taking owner-occupied homes and converting them into rentals, these companies tend to increase the supply of rentals. That puts downward pressure on rents, while taking away purchasable homes leads to higher prices. 

That conversion also takes away opportunities for would-be homeowners to buy a coveted single-family home. But even that comes with an under-appreciated upside, said Gorback: It provides more priced-out renters the opportunity to live in single-family homes — typically located in wealthier, whiter and higher-resourced neighborhoods — something that has historically reserved for those who can afford to buy.

While apartment buildings are commonly owned and managed by large financial companies, single-family rentals weren’t seen as Wall Street-worthy money-making opportunities until the aftermath of the Great Recession. Since then, companies like Invitation Homes, Blackstone, Progress Residential and AMH Homes have focused on markets with relatively low prices and rapidly growing populations.

That doesn’t describe California. As a result, larger investors — however defined — make up a relatively small share of single-family landlords in the state. Fewer than 3% of all single-family homes in the state are owned by companies that own at least 10 properties, according to an analysis by the California Research Bureau, which conducts research for state lawmakers. A mere 20,066 are owned by firms with portfolios of 1,000 units or more. The largest of those owners is Invitation Homes, which owns over 11,000 homes in the state and reached a settlement with Attorney General Rob Bonta’s office last year over allegations it price-gouged tenants and illegally raised rents on more than 1,900 properties.

There are more than 16 million rental units across the state, according to Census data.

Though inveighing against big monied investors for the high cost of housing is a “huge distraction,” it has obvious political appeal, said Stan Oklobdzija, a UC Riverside public policy professor. “Attacking institutional investors is the latest iteration of appearing to do something without actually doing anything. … It’s just kind of archetypical cheap talk.”

For nearly a decade, Democrats in the state legislature have proposed bills to track or ban the practice. Former Gov. Jerry Brown in 2018 vetoed a bill to create a registry of institutional investors that own 100 or more single-family homes, noting that “collecting the data would not stop the purchase of these homes by private investors.” 

In 2024, lawmakers proposed banning investors that own at least 1,000 single-family homes from buying more houses and renting them out, prohibiting institutional investors from buying single-family homes for any reason and banning developers from selling entire new single-family subdivisions to investors to rent. All three bills died in committees. 

Assemblymember Alex Lee, author of the first proposal, revived the bill last year. It passed the Assembly and awaits a hearing in a Senate committee. 

Lee, a Democratic Socialist who has long critiqued the role of big money in the state’s real estate market, said he was “flabbergasted” to find himself on the same page with Trump, whom he described as a “far-right fascist.” Though he expressed doubts that the Trump administration would follow through with the promises the president made in his social media post, he said that “Democrats need to wake up to this populist, but righteous, position.”

“We can’t let the far-right capture the housing positions that the people care about,” Lee said.

Newsom evidently agrees.

CalMatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics.