The Treasury Department’s proposed regulations would preserve qualifying rental construction, major rehabilitation and tenant-homeownership programs while defining which acquisitions large institutional investors can make after January 7, 2027.
Released October 22, 2026, the 96-page proposed rule would establish standards for newly constructed rental homes, substantial property renovations, programs helping renters become homeowners, and certain mortgage-related transactions.
The most consequential distinction is that Congress has already established the purchase prohibition and its exceptions. Treasury is proposing how several of those exceptions should operate in practice.
Under Section 1001 of the 21st Century ROAD to Housing Act, the restriction generally applies to for-profit entities engaged in single-family housing activities that directly or indirectly exercise investment control over at least 350 covered homes. The statutory framework is broader than simply counting properties held under one company’s name.
Treasury’s October 22 announcement says the regulations are intended to preserve investment in housing supply without undermining opportunities for individual homebuyers. The proposal is not final, and its issuance does not establish that the regulations will take effect unchanged.
The Purchase Restrictions
The ROAD to Housing Act, enacted July 11, 2026, generally prohibits covered large institutional investors from buying, or entering contracts to buy, additional single-family homes beginning January 7, 2027, unless a statutory exception applies. The underlying federal law covers structures containing no more than two residential dwelling units, excluding manufactured homes.
Its definition of investment control can encompass direct ownership, managerial authority and certain indirect equity relationships. Consequently, a company cannot necessarily escape the restriction simply by distributing its housing investments among affiliated entities.
However, the 350-home threshold is not a universal ceiling on the number of properties an institution may own. The law restricts covered acquisitions and provides specified exceptions. It also contains rules governing which properties count toward the threshold.
Importantly, existing holdings are not automatically subject to forced sale simply because the restriction begins. Treasury’s proposal does not rewrite that statutory framework.
Construction and Renovation
One of the proposal’s most important provisions concerns build-to-rent housing. Under proposed Section 36.5, qualifying purchased homes would generally have to meet three requirements:
- They must not previously have been occupied by an owner-occupant.
- They must be purchased within 18 months after receiving a certificate of occupancy or equivalent authorization.
- After acquisition, their first occupants must be renters.
Treasury’s approach would distinguish additions to rental housing supply from investor purchases of existing owner-occupied properties. The agency considered a broader interpretation covering older properties originally constructed as rentals, but expressed concern that treating decades-old rental homes as newly constructed would conflict with the statute’s language and purpose.
The proposed 18-month qualification period therefore matters for builders and investors considering the timing of completed-home acquisitions. The renovate-to-rent exception presents a different test. Section 36.6 would require the investor to substantially rehabilitate a home that had material deficiencies involving structural or core building systems when purchased.
Ordinary cosmetic improvements, routine maintenance and upgrades intended merely to increase rental value would not be sufficient. The investor would also have to make improvements totaling at least 15% of the home’s purchase price, as defined for this purpose.
Treasury proposes a separate, nonexclusive safe harbor for establishing substantial rehabilitation: qualifying spending on structural or core systems equal to at least 10% of the home’s purchase price, alongside the resolution of all material deficiencies. That 10% safe harbor would not replace the separate 15% total-improvement requirement.
Why Land Value Matters
A less obvious feature of the proposed regulations could significantly influence renovation economics. Treasury would measure both percentages against the price attributable to the residential structure, rather than the entire property including land.
Consider an illustrative transaction involving a property purchased for $400,000, with $160,000 attributable to the house and $240,000 to land. Under Treasury’s proposed approach, the minimum total improvement requirement would be:
15% × $160,000 = $24,000. The 10% structural-or-core-system spending threshold for the proposed substantial-rehabilitation safe harbor would be: 10% × $160,000 = $16,000. For comparison, applying 15% to the full $400,000 transaction price would produce a $60,000 threshold.
That is a $36,000 difference in this hypothetical transaction. These are Investozora calculations using illustrative property values, not Treasury estimates or figures for an actual acquisition.
Renovate-to-Rent Threshold Calculator
Calculate Treasury’s proposed 15% improvement requirement and 10% structural-rehabilitation safe harbor using the purchase price minus tax-assessed land value.
Land-Inclusive Comparison
Investozora calculation: Excluding $240,000.00 in tax-assessed land value reduces the illustrative 15% improvement threshold from $60,000.00 to $24,000.00 — a $36,000.00 difference, or 60%. This compares spending thresholds, not actual savings.
What the Numbers Do Not Establish
The home must have qualifying structural or core-system building-code deficiencies at purchase, and all material deficiencies must be resolved under the proposed standards.
The 10% structural safe harbor does not replace the separate 15% total-improvement requirement. Other acquisition and program conditions also apply.
Treasury has requested comments on eligible costs and calculation methods. The regulations are proposed, not final. These illustrative calculations do not establish legal eligibility or actual renovation savings.
Source: Treasury proposed rule (§§ 36.2, 36.6), Treasury announcement and Federal Register notice.
Research and calculation: Investozora.
The calculation reveals an important policy choice: the proposed methodology would prevent expensive land from automatically increasing the rehabilitation-spending requirement. It could make qualifying rehabilitation projects more financially feasible in land-intensive housing markets.
However, the investor would still need to demonstrate that the home had qualifying deficiencies at purchase and that required rehabilitation was performed. Treasury has requested comments on the appropriate treatment of improvement costs and the use of the structure-only purchase price.
Homeownership Programs
The proposal also provides more detailed conditions for programs designed to help tenants purchase homes. Sections 36.7 and 36.8 address homeownership programs and programs to boost homeownership.
Among their proposed requirements are positive rental-payment reporting, qualifying purchase rights, meaningful financial support and protections concerning the continuation of program terms. Treasury proposes a nonexclusive financial-support safe harbor using the lesser of $5,000 or a percentage-based amount.
The percentage would generally be 2.5% after at least five years of qualifying rental occupancy and 3.5% after at least seven years. The calculation would use the lesser of the relevant property purchase price and the applicable county FHA one-unit mortgage limit.
For illustration, if the applicable calculation base were $180,000, the five-year percentage amount would be $4,500. The seven-year calculation would produce $6,300, but the $5,000 cap would limit the safe-harbor amount.
Those thresholds are not universal government grants or guarantees that renters will receive money. They are proposed standards for determining when investor-provided assistance qualifies under the relevant exceptions.
Treasury would also prohibit investors relying on the safe harbor from recovering the assistance indirectly through higher purchase prices or additional charges. For programs to boost homeownership, proposed rules would clarify tenants’ right of first refusal and a 30-day first-look period, subject to specified conditions.
These provisions could create pathways to ownership for eligible renters, but the proposed rule does not establish how many households would participate or eventually purchase homes.
That matters because financial assistance does not by itself overcome every barrier to purchasing a home. Mortgage qualification, interest rates and available savings remain relevant, as discussed in Investozora’s coverage of homebuying costs and mortgage-rate changes.
Investor Control and Enforcement
Treasury’s proposal also addresses the ownership structures commonly used in institutional real estate investment. Under proposed Section 36.16, passive-investor treatment would require separation from relevant management roles and an absence of specified property-control rights.
The proposed definition considers whether directors, officers, employees or designees connect the investing entity to the entity controlling the housing, and whether the investor holds rights to direct or prevent property decisions.
This matters because significant equity ownership does not necessarily establish operational control, while indirect contractual rights may confer substantial influence.
The proposal also clarifies that entities holding homes temporarily and incidentally as part of another legitimate business may fall outside the relevant housing-business criterion, provided several conditions are satisfied.
Separate provisions would accommodate qualifying transactions involving previously contracted debts, foreclosures, loss mitigation and certain transfers between large institutional investors.
These provisions are intended to avoid unnecessarily disrupting mortgage servicing, distressed-property transfers and housing-market liquidity. Such concerns exist alongside broader housing-finance pressures reflected in Investozora’s reporting on housing construction and new-home sales.
The law authorizes civil penalties of up to the greater of $1 million per violation or three times the property purchase price. Proposed Section 36.17 would treat one prohibited home purchase involving multiple covered institutional investors as a single violation for purposes of calculating the maximum civil penalty.
That would prevent the maximum from automatically multiplying merely because several affiliated investors participate in one acquisition. It would not eliminate responsibility for participating entities or combine distinct prohibited property purchases into one violation.
What Remains Unresolved
The Treasury proposal represents the first phase of a potentially broader regulatory process. The agency expressly identifies reporting, recordkeeping, compliance procedures and additional statutory exceptions as matters that may be addressed in later rulemakings.
That distinction is significant for investors establishing acquisition procedures ahead of January 2027. The Federal Register notice, scheduled for publication October 23, requests public comments within 30 days after publication. The official notice should be consulted for the final applicable submission deadline.
Treasury has also requested feedback on the proposed 18-month construction window, renovation eligibility, financial-support standards, passive-investor criteria and enforcement treatment.
The proposal contains no verified estimate establishing how many homes would become available to individual buyers as a result of these rules. Nor does it demonstrate that the restrictions will produce a particular reduction in home prices or mortgage costs.
Housing affordability depends on multiple factors, including supply, financing conditions and local market concentration. Investozora’s coverage of mortgage financing and the mortgage-rate outlook provides additional context. The January 7, 2027, statutory start date remains the central deadline. For large investors, the immediate question is whether planned acquisitions qualify under the law and ultimately applicable regulations.
For prospective homebuyers, the more consequential unanswered question is whether limiting certain investor purchases will materially improve access to affordable homes in the communities where institutional ownership is concentrated. Treasury’s proposal establishes a potential implementation framework, not the answer to that question.
