It might be as important to know “who” as it is to know “how much.”

For the past several years, the Bozeman City Commission has struggled mightily to solve the problem of housing unaffordability. Credit is due to them for taking action. Because they believe the affordability problem is caused by a short supply of new housing, the commission’s response to the affordability crisis has been to increase housing supply. In practical terms, this has meant streamlining review processes, reducing regulations, and inviting higher density buildout everywhere—all without any legal requirement that housing created in the new, relaxed regime be priced affordably.

This action—essentially, deregulation—has many current residents believing the commission is sacrificing their beloved community’s livability to solve a problem residents had no hand in creating. This criticism seems fair. Yet, an even larger question looms over the city’s chosen solution to the housing crisis. What if a tight housing supply is not the only important factor driving housing prices through the roof? Worse—what if, by increasing the speed and density of buildout, the commission simply causes more residences to be constructed, but that remain unaffordable, while being poorly planned and more poorly built than residents have a right to expect?

The commission is right to believe that tight supply is a contributor to the housing crisis. But tight supply is compounded by another factor that the commission could address without degrading Bozeman’s character. This other factor is investor ownership of housing. The power of private investors—a motley crew ranging from multiple home-owning individuals, to serial house flippers, to LLCs and giant private equity firms—to decrease housing supply and increase prices in markets where they operate in sufficient strength is now a well-accepted fact.

Research into the nationwide housing affordability crisis conducted by groups from vastly different political leanings keeps repeating the same finding: investors, especially “institutional investors”—defined by the National Association of Realtors (NAR) as “companies, corporations, or LLCs”—are bad actors who drive up costs and reduce housing availability for regular people. These and other findings should give Bozeman leaders plenty of reason to change course as they try to steer the city’s housing market.

According to Pew Research, investors last year purchased 25 percent of single-family homes in the U.S. That’s right—one-quarter of all single-family residences in America are not being bought by people as residences, but rather by private investors as assets. The NAR issued a report in May with similarly dour findings. The NAR points out that institutional investors out-compete regular homebuyers in the market, because investors use high-volume digital purchasing platforms, often pay cash, and make “as is” offers on less valuable homes. The NAR flatly states that institutional investors’ purchases “subtract from the available housing for home ownership.”

Some places are worse off than others. According to the U.S. House of Representatives Financial Services Subcommittee (charged with investigating the housing crisis), in the third quarter of 2021 in Atlanta, GA, nearly 43 percent of for-sale homes were snatched up by institutional investors. Meanwhile, here in the West, Phoenix, AZ saw close to 39 percent of for-sale homes go to investors. What happens to housing after investors grab it? Usually a little more than 40 percent of investor-purchased housing is converted to single-family rentals, while around 45 percent is resold. Corporate ownership of single-family residences has been on an upward arc since 2010, with 2021 showing the fastest increase. Clearly, this problem will not go away unless it is driven into extinction by lawmakers.

What can we extrapolate from these findings? Well, we can say that Bozeman, as a “hot” market with a profile on the national stage, is probably experiencing a greater than average amount of investor purchasing—maybe not by giant firms, but by plenty of smaller ones, and individuals. Without proper research, it’s hard to know how deeply investors have penetrated our market. Like so many other markets in the U.S., the Bozeman market is crowded with losers (average people), but also boasts some big winners—whoever or whatever is paying cash on a million-dollar bungalow. One thing is sure: the winners in our market depend on and multiply the losers.

As the NAR points out, it is crucial to understand that investors large and small are to blame for market price increases and supply decreases. Nationwide, investor activity in markets provides a compelling explanation for why supply is not keeping pace with demand. Investors have a double bad effect: first, they purchase housing with the specific purpose of increasing average rents and re-selling homes at higher prices; second, they drive down housing supply for average people.

Facing our situation head-on, we can say this: housing markets cannot serve regular people and provide investors with an “attractive” market at the same time. Local realtors have estimated that up to 50 percent of new housing is being purchased by investors. Somebody—investors—has to go! If the city could stop investor purchase and recoup newly built single-family residences lost to investor purchase, they would double the number of houses available to regular homebuyers.

And that would not be the end of the benefit. Without pressure from investors, the average single-family sale price would likely decrease. Therefore, Job One is for the city to clamp down on investor purchase of housing. And, to deal more broadly with Bozeman’s housing crisis, the city should prohibit two of the three categories of currently permissible short-terms rentals. This prohibition would dramatically increase rental housing opportunity, returning many hundreds of additional rental units to the long-term rental market, thereby increasing rental stock and softening the price of rental units for regular working people.

These two moves alone will not solve Bozeman’s housing affordability crisis, but they offer a more promising start on the problem than gutting regulations.