The 21st Century ROAD to Housing Act, a bipartisan law that took effect at midnight Friday, is both the largest housing effort in a generation and unlikely to do much to alleviate the high cost of renting and homeownership in America in the near future.
This legislation is not a big-society achievement, like the 1965 law that created the Department of Housing and Urban Development and released billions of dollars to build affordable housing and provide rental subsidies. Rather, it contains a mix of measures that, in various ways, aim to speed up construction in hopes of filling a housing shortage that economists estimate at between one million and six million units. Housing experts across the political spectrum have been calling on Congress to pass a measure like this for a decade.
Why, then, won’t it make a big difference? The main reason – besides money, of which the legislation contains little money – is that the federal government does not control the main levers of the real estate market. Cities and states write most of the regulations that determine what is built and where, while interest rates and other macroeconomic factors have most of the influence on mortgage costs. Additionally, it takes years to plan and build housing, and voters are suffering today.
The bill became law by an unusual route: It passed by wide margins in both houses of Congress, but President Trump refused to sign it in protest against Senate Republicans who had failed to pass a separate voting restriction bill. He did not veto it, however, so the bill became law automatically 10 days after it was sent to his desk.
The legislation is a triumph “simply because it exists,” said Laura Foote, executive director of YIMBY Action, a San Francisco-based housing advocacy group.
In California, Ms. Foote and other activists spent a decade pushing for measures to make housing more plentiful and affordable. The state has passed dozens of measures, attacking zoning and environmental laws that its Democratic leaders considered untouchable. California has more in the works this year, and next year will likely see several more.
Montana, Arizona and other states have also made versions, part of a nationwide shift that is gradually making single-family home neighborhoods denser, taller and more multigenerational. But these changes have been slow and incremental, illustrating how housing – deeply ingrained in American culture and the foundation of the financial system – is set to change.
Federal legislation builds on these state and local efforts. But as affordability challenges, long a reality in high-cost coastal states, spread across the country, its greatest significance lies in the bipartisan message that America needs more housing.
Here are some of its notable features.
This shows that Congress can legislate, even modestly.
Much of the measure consists of small changes that housing experts have been talking about for decades.
Take, for example, a change to the Housing Choice voucher program (better known as Section 8), which provides subsidies to low-income people renting from private landlords. The program requires regular inspections, and participating landlords may have to keep units vacant for months while waiting to secure one.
In effect, it reduces the supply of affordable housing by discouraging building owners from accepting voucher holders as tenants. The legislation waives the inspection of homes that have been inspected under other federal programs (such as the Low-Rental Housing Tax Credit) in the preceding 12 months.
Housing experts at HUD and elsewhere have pushed for this and other relatively uncontroversial policies — such as guidance on how state and local governments can spend disaster recovery money — under several administrations. Congress simply never realized it because it was preoccupied with other priorities or mired in partisan bickering.
“A lot of what you see in the bill is a catch-up on 30 years of policy that was stalled because Congress didn’t have the bandwidth to pass housing legislation,” said Ben Metcalf, executive director of the Terner Center for Housing Innovation at the University of California, Berkeley. “This is the kind of thoughtful legislation that Congress used to do all the time, but never does again.”
He recognizes that local governments often make the final decision on where, how and whether to build housing.
Developers spend a lot of time complaining about regulations, but it’s agencies like city councils and planning commissions, not the federal government, that draw their ire most. Not only will this remain true long after the housing bill becomes law, it is guaranteed to blunt virtually any federal housing effort for the foreseeable future.
So instead of ambitious mandates, the legislation attempts to incentivize cities to build more using carrots and sticks through HUD’s Community Development Block Grant program as well as a separate innovation fund. The carrot gives cities greater latitude to use HUD funds for housing construction (which was not previously allowed). At the same time, it changes the formula for awarding block grants to reward high-cost cities that initiate changes that strengthen housing supply, such as allowing denser housing and faster permitting.
This is unlikely to lead to significant changes in the way cities function: zoning, environmental preservation, and historic laws that govern local land use are the primary means by which local authorities control the shape of their communities. And in most cities, property taxes and development fees account for the majority of local tax revenue.
But it’s a boost. Over the past decade, states led by both Democrats and Republicans have adopted measures to limit the power of local governments to block new housing construction. Moving in the same direction, the federal law essentially gives state officials permission to continue to relax restrictive local rules and creates a framework for more federal actions in the future.
It consolidates single-family rental housing as the cornerstone of the real estate market.
In the nearly two decades since the Great Recession, one of the biggest changes to the real estate market has been the gradual replacement of starter homes with single-family rental homes. This shift began when large investors and pension funds began buying up cheap properties after the 2008 financial collapse, when many homes were foreclosed on. It was so lucrative that developers began building entire subdivisions of single-family homes that were rented.
These build-to-rent communities have become one of the fastest growing segments of the housing market. In 2014, builders completed fewer than 1,000 homes in built-for-rent communities, according to Zonda, a housing data and consulting firm. Last year, they completed about 65,000 homes, or about 4 percent of the new housing stock.
The change was criticized by politicians on the left and right for removing the bottom rung of the home equity ladder, and an earlier version of the legislation aimed to rein in that industry. The final version still imposes restrictions on large investors buying existing homes, but lifts them for new homes built to rent.
“This bill essentially makes the construction of dedicated rental communities the primary growth area for the single-family rental sector,” said Richard Ross, chief executive of Quinn Residences, which owns about 5,300 single-family homes in rental communities across the Southeast.
This could spark a wave of innovation in construction techniques – but it will take time.
Since the 1970s, HUD has required manufactured housing to be built with a permanently attached chassis so that the homes can be easily transported. However, only a small part of them are mobile homes; After sliding off a shelf, most manufactured homes are placed on a permanent foundation.
The chassis requirement added thousands of dollars to the cost of each unit. It also limited the number of homes that could be built in a factory, as many cities use zoning codes to limit manufactured homes to mobile home parks.
The new law removes the requirement for frames, immediately reducing the cost of producing these homes. More importantly, it could allow builders to experiment with the look of prefab homes, creating cheaper and more attractive prefab homes.
The law directs HUD to study building codes and funding changes to also expand the potential of modular construction (in which larger buildings are essentially stacked like Lego bricks).
Innovation is something that has long been lacking in the real estate market. Walk through a suburban construction site and, aside from nail guns and iPads, many work tools remain largely unchanged — one reason why productivity in home construction, which boomed after World War II, has lagged in recent decades.
Manufactured housing is a rare exception to this rule, but it has been hampered by rules that limit how they can be built and the neighborhoods in which they can be placed. The legislation aims to change that and, over time, could lead to a revolution in the entry-level homes America needs most.
