Posts Tagged ‘news’
The ROAD to Housing Act
This week, the U.S. Senate passed a sweeping bi-partisan package of bills aimed at lowering housing costs. The measure faces some opposition in the House due to some political pressures, but it’s likely this will eventually land in the White House for a signature. Given the widespread concern in the electorate about housing affordability, these politicos can hardly be seen as going home doing nothing. However, will this package do what it intends?
One section of the bill aims to ‘cut red tape around environmental reviews, empowering state, local, and tribal governments to streamline reviews and increase housing development.” (A summary of the bill from the Senate Committee on Banking, Housing, and Urban Affairs.) This has long been a sore spot for housing developers, but these sorts of review usually happen well before the first shovel of dirt is turned in a new subdivision. Further, this will require local, state, and tribal rule making, and I think you can already see the long knives being sharpened by attorneys representing environmental interests. This part of the bill will be tied up in 10,000 court cases for quite a few years, and even if it is ultimately successful, it may reduce new housing costs by one or two percentage points ten or so years from now. None the less, it’s something.
There is a related provision to offer grants or loans to state, local, and tribal governments to assist in updating local rules and regulations. Local urban planning departments are strained already, and the notion of trying to re-write local environmental and housing rules on the fly without some assistance is unimaginable. That said, what we’re talking about is money to hire new staff and consultants, and so again this is something that will only kick in down the road.
The bill encourages increased production of manufactured housing. Currently, a manufactured home is required to have a steel chassis so that it can be moved from one place to another, like a trailer. However, these homes are almost never moved. The new rules would update the definitions to include modules manufactured without a permanent steel chassis. Of course, this means a manufacturing infrastructure will have to be spun up, and local rules and regulations re-written to accommodate the new housing product. However, of the various provisions in the bill, this one perhaps holds the most utility for near-term help in the market.
Another section creates a program to offer grants and forgivable loans to homeowners and landlords seeking to repair homes. This provision also has some potential, although it probably aids small landlords much better than fixer-upper homeowners. I don’t see it doing anything for housing affordability, though, but I am open to argument. Nonetheless, anytime the Federal Government ‘creates a program’ without funding it, we can only wait and see. More benefit might come from a requirement that the Federal Housing Administration (FHA) increase the limits on loans for multifamily mortgages. This can have some substantial benefits for investors, increasing the availability of rental housing, but not necessarily for home ownership affordability.
Finally — and this is the provision that is giving the bill some headaches in the House — the bill would ban large institutional investors from directly or indirectly owning 350 or more single family units (with the exception of government entities). This is less of a deal than it’s made out to be. I’ll write a separate blog post sometime soon about this, but for the record, Blackstone owns 63,000 single family dwellings, which is roughly six-one-hundredths of one percent of the U.S. housing stock. My argument is that these large investors tend to overpay but this doesn’t crowd out actual home owners, it crowds out traditional mom-and-pop landlords. Again, that’s a matter for another discussion.
Since the House of Representatives doesn’t have a filibuster, and this has wide bi-partisan support (this being an election year), there’s a strong likelihood this will become law before summer. However, any actual impact of this is quite a few years down the road.
As always, if you have any questions or comments, please e-mail me!
John A. Kilpatrick, Ph.D., MAI
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RAND Study on the Housing Crisis
The RAND Institute, headquartered in Santa Monica, is (in my humble opinion) one of the top-tier sources for research on public policy issues. Founded in 1948 as a partnership between Douglas Aircraft and the Air Force, its founding members included Curtis LeMay and Hap Arnold. The affiliated Pardee Rand graduate school offers a well-regarded Ph.D. in public policy.
Two of the faculty members, economist Jason Ward and Sarah Hunter, a behavioral scientist, recently shared some of their research on the subject. First, they note that interest rates alone have driven up the monthly payment on typical home by as much as 40% over the past 3 years. I would note that this doesn’t factor in the increased cost of the home itself, increasing property taxes and insurance, and increasing costs such as utilities. The Harris campaign has proposed a $25,000 tax credit for first time buyers to assist with down payments. However, a similar pilot-project in California did not fare well and has been linked to driving up the cost of housing in some areas.
Conversely, rent costs have actually moderated a bit very recently, but only because rent growth was so high during and immediately after the pandemic. That said, the RAND researchers noted that a record number of renters are experiencing housing cost burden, that is, a total housing cost above 30% of gross income. Government incentives for renters are a mixed bag. The Low-Income Housing Tax Credit program provides about $13.5 Billion per year for developers of income restricted, subsidized housing. This program produces about 100,000 housing units per year. However, land use and zoning regulations — a local function — have actually been counterproductive in recent years, with restrictions on multi-family locations, density, energy efficiency, and parking requirements all driving up the cost of solving the housing problem. In much of California, for example, local regulations have driven up the cost of producing an efficiency apartment to nearly $1 million.
The current administration has provided $3.16 Billion to address homelessness, providing funding for over 7,000 local projects to provide housing assistance or support services. Some local governments are also stepping up to the plate. For example, Los Angeles passed a one-quarter cent sales tax in 2017 to fund about $355 million per year for homeless prevention services. This year, they have another measure on the ballot which would provide a $1.2 Billion bond measure to build supportive housing. Houston, Texas, is held up as a model for addressing homelessness with a housing-first approach. As a result, the Houston region has reduced homelessness by 63% over the past 10 years, with an emphasis on coordination across agencies.
Their research continues, and I’m reaching out to Professors Ward and Hunter in the coming weeks as I prepare for a talk I’m giving on this subject in late December. I’ll continue reviewing some of the issues and current research on the complex housing crisis we face in America, with an eye toward finding some consensus on steps forward to solve these issues and share my findings with you as I go along. As always, if you have any comments or questions on this or any other real estate related topic, please don’t hesitate to reach out.
John A. Kilpatrick, Ph.D., MAI
From a small northwestern observatory... 