Midyear National Legislative Update

Overheard in the Senate

The U.S. Senate’s Banking, Housing & Urban Affairs Committee held a “State of Housing 2023” focused session in early February and a few key insights reflected the political divide that is likely to prevent substantive housing legislation from moving forward in a split control House/Senate.  Housing is considered a priority due to affordability issues regarding interest rates and the expanding presence of Wall Street investments in single family housing.  The partisan divide can be differentiated:

• Democrat solutions: Tax credits and housing vouchers. 
• Republican solutions: reduction in regulatory red tape and caution against additional federal spending.

The Committee’s makeup is as follows:

It is important for NREIA Members living in these communities to make it a priority to meet with these offices representing 20+ states, as they will have a significant impact on everything from HUD regulatory oversight to new legislation.  Whether you attend the Washington D.C. Day on the Hill event (taking place in March) or not, reaching out through your local REIA to develop relationships with these offices, as community stakeholders will be crucial for future efforts to be effective - especially if residing in Ohio & South Carolina!

Blue Print for a Renters Bill of Rights

U.S. President Theodore Roosevelt, who referred to his office as a "bully pulpit.”  He said this because it is a terrific platform from which to advocate an agenda and lay the groundwork for pushing policy, even when Congress cannot or will not move.   This largest of soap boxes (currently being used by the Biden-Harris Administration) recently pushed the latest in a new round of housing policy in late January by supporting a multi-pronged housing blue-print aimed at federalizing housing policy and ultimately, nationalizing housing.

The key features listed are:

1. Protections against Evictions.

2. Rent Control and Affordable Housing.

3. Health & Safety Standards.

4. Fair & Equal Access to Housing. 

With the massive expansion of the federal government into the traditionally state and local domain of housing during the Covid Emergency, the 10^th Amendment is further being pushed aside with this new round of policy surge.  Over 20 departments are preparing new regulations to further these 4 points over the next 6-12 months in a “whole of government” response.  This is being done as if inflation and chronic underbuilding of single-family & multi-family housing are natural disaster.  However, the Blueprint is really little more than an excuse for an anti-capitalist and statist agenda by a few elites who are completely unplugged from the reality of housing in America.  The language within the report is very telling:

“Prior to the pandemic, few federal or local efforts supported eviction prevention or a fair eviction ​process and only a few of these have been evaluated.” (Pg. 17, Paragraph 3)

In all 50 states, all territories, and throughout the land, evictions have been unfair.  Note to every member of the Bar and housing judge or magistrate – they just called you corrupt and complicit!  The real irony and most telling piece that this is an agenda more than a solution, is the admission that “only a few have been evaluated!”  If only a few of the few have been evaluated, how can they all be unfair?  In a typical political response this is a solution in search of a problem.

The real focus is on a core group of housing advocate wish-list items, long shown to be ineffective.  The first of, course, is Rent Control. Please see the response below for a simple summary of how devastating bad this idea is for a community.

Second, Rent Setting – the DOJ and other agencies are seeking to halt the process of dynamic rent setting: the same process airlines use to sell tickets, Hotels use to sell rooms, and just about every other facet of the market works in response to changing demand.  Again, it’s anti-market and anti-capitalism.

The third focus, is Source of Income (SOI).  This is the rule that overrides Congress’ intent to make the housing Choice Voucher Program, often referred to as Section 8, mandatory rather than voluntary.  The reason for making it mandatory?  HUD programs, as (mis)managed through three-thousand various Public Housing Authorities, are so poorly run that housing providers do not want to participate in their programs.  Rather than fix the program and compete in the marketplace, this administration and housing activists are pushing for laws that ban choice and guarantee the government is a partner in as many housing choices as possible.

While there is lip service to eviction prevention, the main answer has been “hire more attorneys.”  As this does little to resolve the financial shortfall, it does drag out the process and tie up eviction courts causing even longer delays in addressing the problematic and even dangerous residents in communities.  The real focus has been to greatly reduce a property owner’s ability to screen residents, and thereby limit risk to the community and the asset.

Following up on the Texas Deptartment of Housing case in 2014, HUD, in conjunction with FTC, CFPB, FHFA, & the USDA want to set new standards for resident screening.  The FTC is especially interested in credit reports being utilized by housing providers who use the reports to determine if someone actually pays their bills (or not!).  To date over 40 states and or municipalities have developed various limitations on screening criteria.

Ironically, after rolling out these “new” policies as a blueprint to federalize American housing, they committed to work with renters and their advocates rather than the stakeholders of the millions of units presently being rented.

Rent Control: a housing solution for the economically uninformed.

In recognition of how devastating rent control experiments have turned out around the country and the world, thirty-one states have preemptively banned rent control.  Some areas are trying to repeal those bans, and many smaller communities are considering the controls, as their decades of mismanagement of housing development have caused a lack of investment that is intensifying an increase in housing costs.  As industry representatives, it is critical to relay the short and long-term impacts while also committing to and working through real solutions on housing rather than easy knee-jerk language.  If in doubt about how to convey the concern, consider turning to something as simple as artificial intelligence chat-creator “ChatGTP” (chat.openai.com), as noted below:

Even AI gets it: Rent control is bad news

The following is a summary statement on Rent Control generated by AI:

Rent control policies are designed to regulate the rental market by setting a cap on the amount of rent that landlords can charge for their properties. While the aim of rent control policies is to provide affordable housing to tenants, there are several problems associated with these policies:

Shortage of Housing Supply: Rent control policies can lead to a reduction in the supply of available rental units, as landlords may choose to convert their properties to other uses, such as condominiums or commercial buildings, in order to avoid the regulations.

Reduced Quality of Housing: Rent control policies may discourage landlords from making investments in their properties, leading to a decrease in the quality of housing available to tenants.

Inefficient Allocation of Housing: Rent control policies may result in an inefficient allocation of housing, as the low rents may cause tenants to stay in apartments that are too large or too small for their needs, or in locations that are not optimal for them.

Disincentives for New Construction: Rent control policies can discourage developers from building new rental properties, as the potential profits may not justify the costs of construction.

Inequitable Distribution of Benefits: Rent control policies tend to benefit current tenants, who are able to secure affordable rents, at the expense of new tenants, who may have to pay higher rents due to the shortage of supply.

Overall, while rent control policies may provide some short-term benefits to certain groups of tenants, they can also have significant long-term negative effects on the rental market*, including reduced housing supply, reduced quality of housing, and inefficient allocation of housing. As such, policymakers need to carefully weigh the costs and (lack of)* benefits of rent control policies before implementing them.

(*Emphasis added)

Seller Finance Coalition:  With new committees and leadership in the U.S. House, the National Real Estate Investors Association has hit the ground running with the Seller Finance Coalition.  A new bill is being prepared for a bipartisan and bicameral introduction, and due to years of foundational relationship-building, is progressing nicely.  Several new Congressional and Senate offices were quite open to the idea that sellers should be able to sell more of their own properties with less government restriction.  For more information about the SFC please visit sellerfinancecoalition.org.  More to come on this important issue!

Three states are legislatively active:

Maryland, Tennessee and Colorado are all in legislative struggles and we are engaging members in those states to communicate a message of concern about their issue.  Ranging from Bans on Wholesaling to the repeal of Rent Control Bans, or the expansion of inspection programs around the state, the industry members in these areas need help.  Please check out the Legislative Action Center on NationalREIA.org to take part.

Stay up to date:

Stay up to date with current industry news and updates by visiting RealEstateInvestingToday.com.  Likewise, visit NationalREIA.org/advocacy to stay up today with current legislation and governmental actions.