Both houses of Congress have passed legislation that could have major implications for U.S. housing affordability and supply. Anticipation is high that reconciliation of the two bills—the Senate’s ROAD to Housing Act and the House’s Housing for the 21st Century Act—will ultimately lead to more streamlined, cost-effective options for renters and aspiring homeowners.
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Both houses of Congress recently passed legislation that has major implications for U.S. housing affordability and supply. Anticipation is high that reconciliation of the two bills—the Senate’s ROAD to Housing Act and the House’s Housing for the 21st Century Act—will ultimately lead to more streamlined, cost-effective options for renters and aspiring homeowners.
“While there are some differences, the strong overlap in content between the two bills is fueling hope for bipartisan agreement on final legislation in the coming weeks,” said Jeffrey Lubell, senior fellow at ULI’s Terwilliger Center for Housing.
Generally, both bills aim to make building affordable new homes easier by providing more financing options, reducing or simplifying regulations, and encouraging zoning changes.
“Overall, this is a really good first step to address the housing shortage,” said Matthew Berger, senior vice president and head of policy for the National Multifamily Housing Council. “It’s important to bring the process to a bipartisan conclusion through reconciliation of the two bills.”
Provisions with Direct Relevance to Commercial Real Estate
Several provisions in the Senate’s ROAD Act are especially important to the commercial real estate industry, particularly multifamily projects, according to Dennis Shea, executive vice president and chair of the J. Ronald Terwilliger Center for Housing Policy at the Bipartisan Policy Center. “For example, the ROAD Act establishes a $100 million pilot program to fund the conversion of vacant or abandoned commercial buildings into ‘attainable’ or mixed-income housing,” Shea said. “It enables the HUD secretary to prioritize grants and financing for affordable housing projects located within designated Opportunity Zones. And it raises the cap on the number of public housing units that can be converted to a Section 8 platform through the Rental Assistance Demonstration program.”
Financing Changes Affect Multifamily Development
Dave Borsos, vice president of capital markets and student housing at the National Multifamily Housing Council, highlighted several provisions in the legislation with implications for developers, including:
- An increase in the per unit loan limit for FHA multifamily loans. Borsos believes this change may have the largest impact on developers of both affordable and market rate apartments. “In our experience, many programs are outdated and lack a provision to increase loan limits based on rising costs,” Borsos said. “They hold back apartment developers from being able to use the programs because of unadjusted limits that don’t align with high per unit costs.”
- An increase in the cap on public welfare investments by banks. This provision, which raises the cap from 15 percent to 20 percent of capital, is likely to affect affordable housing and community development projects, Shea said.
- HOME investment partnership program reform. “HUD’s HOME program is part of the capital stack that covers the shortfall for affordable housing developers between what LIHTC credits cover and the per unit development cost,” Borsos said. “Reforming the program should make it more effective.”
Manufactured Housing as a Supply Strategy
Other legislative goals in both bills include eliminating HUD’s “permanent chassis” requirement for manufactured dwellings. Shea estimates that the rule change could significantly trim the cost of each unit.
“This would enable the construction of multistory manufactured homes,” Lubell said, “such as stacked duplexes and townhomes.”
Lesli Gooch, CEO of the Manufactured Housing Institute, explained that whereas other types of housing construction follow state and local building codes, manufactured housing is built according to the HUD code, which includes a steel chassis on wheels.
“That regulation from 1974 created efficiencies for manufactured homes that made them more affordable because the factories were approved and inspected by federal regulators, and the plans were approved by HUD,” Gooch said. “Site-built homes need to meet a variety of state and local codes. Builders lobbied for manufactured homes to be built on a permanent chassis that allows them to be transported, which meant builders didn’t need to compete with them on regular sites.”
Gooch said manufactured home designs are currently limited to what can be built on a chassis, so removing the mobility requirement will allow more innovative, site-specific designs.
Doing so “will unlock the whole process for manufactured housing, because with a permanent chassis they can only look one way, based on how you move around the rectangles,” Gooch said. “Now, we’ll be able to initiate more design options that will allow more manufactured housing in infill developments and higher-density areas.”
In addition, some of the financing provisions in the legislation, such as improved access to small loans, can be particularly impactful for people seeking to buy manufactured houses, Gooch said. “We’re already showing developers how manufactured homes can be a good missing middle option—a new energy-efficient home at a lower price point—and now we’ll be able to design homes with different elevations to fit more communities,” she said.
Zoning Reform Through Federal Incentives
Because zoning is primarily under the jurisdiction of state and local governments, Congress is looking at incentives to encourage granting of building permits rather than enacting mandates, Borsos said.
“Restrictive land use and zoning policies have significantly contributed to today’s shortage of affordable rental and starter homes,” Shea said.
To encourage reform at the local level, the legislation relies on a mix of incentives, including:
- Directing HUD to provide technical assistance and share best practices with local communities seeking to reform their zoning codes
- Establishing a new grant program at HUD to help local governments implement pre-reviewed housing designs (pattern books) that can streamline the construction of accessory dwelling units, duplexes, and townhouses
- Creating a new $200 million annual competitive grant program called the Innovation Fund to reward communities that have adopted pro-housing policies such as eliminating costly off-street parking requirements and allowing for denser development
- Linking local communities to federal transportation funds and to the Community Development Block Grant to boost housing production
Deregulatory Measures and Development Opportunities
Overall, the legislation is intended to reduce regulatory costs associated with home building and to unleash new development opportunities for both small- and large-scale developers.
“The ROAD Act streamlines the review process under the National Environmental Protection Act for infill development, thereby reducing the potential for costly construction delays,” Shea said. “For qualifying small developers and landlords, ROAD establishes a five-year pilot program that would provide grants and forgivable loans to mitigate health hazards and stabilize aging units. It also expands FHA Title I loan limits and eligibility to include accessory dwelling unit construction. For larger multifamily developers, ROAD directs FHA to study its multifamily loan limits and adjust them upward to better reflect today’s construction costs.”
Even after enactment, Shea said, some of the new grant programs in the ROAD Act will need to be funded through the annual appropriations process. A comparison of the provisions in the House and Senate bills is available from the Bipartisan Policy Institute.
