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From the Hill

California’s Quest to Push Housing Even Further Out of Reach

Renting Must be Part of the Solution By David Howard Make no mistake: It is a difficult time for homebuyers right now, and California stands out as one of the nation’s toughest states to buy a home. It’s not just that home prices are hitting an all-time high, and that California features some of the least affordable housing markets in the country. High interest rates mean that even families that have enough for a down payment will be left with expensive, budget-busting mortgage payments. Experts are declaring right now as ‘the worst time to buy a home.’ Millennials in California have growing families, and they are going to need more housing options — not less. But even as many families are locked out of buying a home, California policymakers are pushing for new laws that would also make it harder for them to find places to rent. Renting must be part of the solution. Daunting Numbers To keep up with its growing population, California needs to build 180,000 homes per year. However, over the last decade, it’s averaged less than 80,000 new homes per year. On top of this, California has less land available for development, meaning a variety of housing solutions are needed including multifamily and single-family rental properties. Across California, it is cheaper to rent than to buy. For young professionals and growing families, renting likely makes more sense from both a financial and a convenience perspective. Renting can save tens of thousands of dollars throughout a year in California where on average, the difference between renting and buying a home is $803 per month — not including insurance, taxes, and other homeownership expenses. By some estimates, California renters could save $112,000 or more over five years given the cost difference to rent versus buy. For higher cost of living areas like Los Angeles, San Jose and San Franciso the difference can be even greater. For decades, renting has been synonymous with apartment buildings. The truth is many growing families need more space, but the only pathway to renting a single-family home is dealing with mom-and-pop owners who may not be great caretakers. Today, housing providers are offering a new solution to California families: professionally-managed single-family homes in desirable neighborhoods where families can be close to their jobs and good schools. These companies make upfront investments to renovate homes; they stay in touch with residents through apps, and they employ teams of on-the-ground maintenance staff who can quickly respond for repairs. Companies also offer high quality amenities and features that are not typically available for a first-time home buyer. Families who rent with these housing providers are finding the right home that meets their needs, circumstances, and budget. For potential critics, it’s important to point out that single-family rental housing has no impact on the supply or cost of housing, a fact backed by research from the Philadelphia Federal Reserve and the University of Southern California. Additionally, research from the Urban Institute has found that roughly 574,000 single-family homes are owned by large companies or investors — just about 1% of the more than 46.6 million total rental properties available nationwide. AB 2584 and SB 1212 So, why are some California legislators doing their very best to limit single-family rental housing? AB 2584 and SB 1212 propose burdensome regulations to the housing market that are both anti-renter and anti-housing. By scapegoating single-family rental housing providers, it ignores the root causes for housing market issues in California and threatens to remove a vital housing option for those living in or interested in moving to the state. Despite the highly beneficial nature of single-family rentals, California is losing ground on this critical housing solution. Between 2017 and 2022, the number of single-family rentals dropped by 81,548 units, according to Census data. When combined with the prospect of proposed regulations, the result would exacerbate, not improve the housing situation in the state — limiting investment in rental properties and stifling new housing construction. Legislators should be laser-focused on making housing as accessible as possible, encouraging policies that make it easier to buy and easier to rent. Californians need access to more single-family homes, especially in growing and high-demand communities.

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Invigorating America’s Housing Market

Some Proposals for Consideration By David Howard This year’s State of the Union address featured a number of proposals designed to invigorate America’s housing market. Most notable among the proposals: »              A two-year mortgage relief credit of up to $10,000 for first-time homebuyers »              A one-year tax credit of up to $10,000 for homeowners who sell a starter home to owner-occupants »              Up to $25,000 in downpayment assistance for first-time homebuyers »              An expansion of the Housing Choice Voucher program for low-income renter households »              An expansion of the Low-Income Housing Tax Credit enabling the construction of more units of affordable rental housing While the Administration deserves credit for its efforts to offer a real and constructive path forward to address the challenges facing America’s housing market, the political environment presents a high hurdle for any of the proposals to become law. Although the Administration is clearly attempting to strike a balance between the supply and demand sides of the housing equation, much of the emphasis is on the latter. So, in the interest of putting forth policy ideas that have the potential to drive housing development and investment, and in the process support SFR renters, owners, and builders, following are proposals for consideration: Allow the GSEs to Participate Fully in SFR Financing Activities Currently, Government Sponsored Enterprises (GSEs), primarily Fannie Mae and Freddie Mac, are restricted by their regulator, the Federal Housing Finance Agency (FHFA), from providing financing for owners of more than 10 one-to-four-unit investment properties. Placing an arbitrary restriction on who can and cannot access a preferred source of capital makes for bad policy. FHFA’s restriction only applies to SFR owners while allowing unfettered access to multifamily owners, regardless of size. Given the GSEs are charged with providing “liquidity, stability, and affordability” to the U.S. housing market it makes little economic — or intellectual — sense to exclude SFR owners merely because they are deemed to be “large.” At the very least, parity between the SFR and multifamily markets ensures the GSEs are better able to serve a broader, more diverse, universe of renter households and families.  Expand the Use of the Low-Income Housing Tax Credit to the SFR Market Currently, the Low-Income Housing Tax Credit (LIHTC), exists almost entirely to enable the production of multifamily units, even though single-family rental homes of between one and four units account for nearly 40% of the nation’s rental housing. LIHTC provisions are notoriously complex, especially so for owners and developers of single-family rental housing. Adapting LIHTC to the needs of the SFR market could be an effective way to expand the stock of much-needed affordable rental housing. Make Workforce Housing More Attainable by Supporting Build-to-Rent Development and Investment Build-to-Rent (BTR) single-family housing is ideally suited to meet the workforce housing and economic development needs of communities large and small. BTR housing is often designed to attract residents with a need for more space than can typically be found in a standard multifamily building. But because workforce housing by definition is not “affordable housing,” policy incentives to spur development and investment are more limited. Making tax credits available for BTR projects can serve a useful purpose in expanding the stock of quality, well-located, BTR single-family workforce housing. Incentivize SFR Owners and Developers to Embrace ‘Green Building’ Practices Residential energy use accounts for approximately 20% of greenhouse gas emissions in the United States. With nearly 20 million single-family rental homes throughout the country, the opportunity for environmental and energy policy is substantial. Expanding the use of targeted tax credits and other tools to encourage the participation of SFR owners can likely have an immediate and lasting benefit. Promote Homeownership through Lease-to-Own Programs Single-family rental housing can serve as an important step on the path to homeownership. Government policy can play an important role in facilitating the transition to homeownership by offering tax credits and other incentives to encourage formal lease-to-own agreements between residents and SFR owners.

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It’s Time to Stop Vilifying Rental Housing Providers…

…. For Providing Rental Housing By David Howard A new bill introduced in January 2024 in the U.S. Senate levies an onerous new tax on owners of single-family rental homes for no other reason than they are deemed “institutional” and therefore somehow a threat to America’s housing market. The “Affordable Housing and Homeowner Protection Act,” introduced by Senators Jack Reed (D-RI), Tina Smith (D-MN), and Tammy Baldwin (D-WI) forces anyone owning 15 or more single-family rental homes to pay a tax on all new acquisitions according to the following schedule: 15-25 SFR Homes Owned  » 1% Tax on New Acquisitions 25-100 SFR Homes Owned  » 3% on New Acquisitions 101+ SFR Homes Owned  » 5% Tax on New Acquisitions As an example, a provider owning 50 single-family rental homes who purchases a property costing $300,000 would owe a tax of $9,000. And why is this bill needed? According to Senator Smith, the bill “would hold the corporate investors accountable who take advantage of our country’s housing shortage at the expense of working families.” SFR Homes are Essential to the Housing Economy However, unlike Senator Smith, the National Rental Home Council does not believe providers owning 15 or more homes are responsible for America’s housing crisis. In fact, we believe single-family rental homes are an essential part of America’s housing economy, providing access to quality, affordably-priced homes ideally suited to accommodate the diverse lifestyle needs and financial realities of millions of Americans and their families. In a housing market defined by an historic undersupply of homes and continuing affordability concerns driven by decades-high mortgage rates, single-family rental homes are a part of the solution for making housing more accessible. Rather than recognizing the important contributions owners and builders of single-family rental homes provide to residents, their families, and local neighborhoods, the industry is often mischaracterized and even criticized by the media, policymakers, and housing advocacy organizations. Instead of supporting the rights of property owners and commending the industry for providing communities with a source of long-term, stabilized single-family rental housing, these critics have put owners on the defensive, and worse, have called for legislation and regulation harmful to the industry. In this column last month, I highlighted a new report from the Urban Institute — “Place the Blame Where It Belongs”— detailing the extent of the housing supply crisis in the United States. The report further identifies a number of common “scapegoats,” including institutional investors, often cited as contributing to the country’s housing challenges. In discussing the role of investors in the housing market, the report states, “Investors do not constitute an independent source of demand and do not take houses off the market,” and “it is hard to argue that institutional rental operators drive up home prices over any reasonable period. Moreover, it is possible that through economies of scale, institutional investors make renting cheaper, changing consumers’ rent-versus-own calculations.” As the Urban Institute report makes clear, yet what is often misunderstood (or ignored) by those critical of housing providers, is the extent to which supply constraints impact all housing types — owner-occupied, multifamily, and single-family rental. More investment in housing generally is good for all housing. And while there are clear benefits to policies intended to expand homeownership, the data show there is as much a need to encourage additional investment in rental housing as well. According to Census Bureau data released in February measuring the inventory of housing in the U.S., the amount of owner-occupied housing has grown almost 9% over the past five years while the amount of rental housing has grown by just over 4%. Taking a longer-term perspective, the share of the country’s housing market accounted for by rental housing is less today (30.8%) than it was 50 years ago (32.5%). A persistent shortage of homes throughout the country continues to drive the cost of housing higher, emphasizing the importance of flexibility and choice for families in search of quality, affordably-priced housing. To address this shortage, we need policies that encourage and incentivize the development and investment in all types of housing, not punitive legislation targeting housing providers.

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Build Baby Build

The Case for Legislation That Encourages and Incentivizes New Investment and Development in Housing By David Howard America’s housing market has a problem – we are not producing enough homes. Just consider the following: »          In 1970, America built 420,000 “starter” homes; in 2020 we built just 65,000. »          Fannie Mae has reported there were fewer homes built in the U.S. in the 10-year period ending in 2018 than in any decade since the 1960s. »          The Washington, DC nonprofit, Up for Growth, has shown the amount of housing underproduction in the U.S. increased to 3.79 million units in 2019 from 1.65 million units in 2012. »          Realtor.com calculated that the gap between single-family home construction and household formation grew to 6.5 million between 2012 and 2022. As a result, the cost of housing keeps increasing. In October of 2023 the S&P Case Shiller Home Price Index reached an all-time high of 312.95, rising more than 50% over the las five years and almost 100% over the last ten years. The result? More Americans are at risk of being priced out of the housing market. According to the National Association of Home Builders, 96.5 million American households are unable to afford a median priced new home. And, with every $1,000 increase in the cost of a median priced new home, an additional 140,000 households are priced out of the market. While some may say rising interest rates are to blame — a factor that undoubtedly makes financing a home less appealing and more expensive — it does not explain the continuing rise in home prices. Historically, one would expect rising rates to be offset to some degree by a decline, or at least a moderation, in home prices. However, that has not been the case. During the rising rate environment of the past 18 months, home prices have not declined, but in fact, have increased. While it is certainly true that America’s housing market is influenced by a wide variety of factors, one of the chief reasons home prices have continued to increase is because we are not building enough homes. As we all learned in Economics 101, strong demand coupled with low supply means higher prices. The concern over housing supply is the subject of a new report by the Urban Institute, a Washington, DC research and policy nonprofit focused on issues of upward mobility and equity. The report, titled “Place the Blame Where It Belongs,” examines the high cost of housing in the U.S. and cites a lack of supply as the principal cause. In the report, the Urban Institute also dispels many of the myths and inaccuracies — including the role of housing investors — commonly used to distract attention from the true underlying causes of the housing market supply/demand dynamic. Key takeaways from the report include: »          “A massive supply shortage is causing high home prices and rents, and the way to fix it is to build more housing (and rehabilitate existing house where economical).” »          “It is important to begin with the basic fact that high home prices and rents are the result of the housing supply shortage, caused by more robust household formation relative to increases in the housing stock.” »          “Regardless of whether investors are institutional or mom-and-pop, and regardless of whether investors buy single-family or multifamily properties, the driving cause is that there is more demand than supply, and some of that demand is demand for rental property.” From a policy perspective the solution is simple: create legislation that encourages and incentivizes new investment and development in housing, a point also brought out in the Urban Institute report: »          “Policy interventions to make housing more affordable for all households must simultaneously 1) make more supply available, and 2) provide adequate subsidies such that lower-income households can afford a place to live.” »          “The federal government must specify a housing supply policy that prioritizes the most cost-effective ways of increasing supply.” Until we start to produce more housing, consistently, we will continue to suffer the consequences of high home prices.

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The “End Hedge Fund Control of American Homes Act”

New Legislation Targets SFR Owners By David Howard In December, Senator Jeff Merkley (D-OR) and Representative Adam Smith (D-WA9) introduced the End Hedge Fund Control of American Homes Act, a bill targeting the legitimate development, investment, and ownership activities of America’s leading providers and builders of professionally-managed single-family rental homes and communities. By forcing any entity owning $50 million or more of single-family rental home assets to sell all properties over a 10-year period, this legislation will: »          reduce the availability of safe, quality, affordably priced housing for hundreds of thousands of renter households nationwide; »          prevent middle-class families from renting housing located in neighborhoods near quality schools, employment centers, and transportation corridors; »          disincentivize the building and development of new units of much-needed rental housing; »          stifle innovation and entrepreneurialism in America’s housing market. A Flawed Solution It is not hard to see the deep flaws in this bill. Besides upending America’s long commitment to the foundational principle of the right to own property, anyone who knows anything about housing surely knows the country is facing a crisis of underbuilding that has resulted in a supply deficit of between four and six million homes. And this bill makes that crisis worse. At a time when housing affordability and supply are at historic lows, we need serious policy solutions and proposals to address this long-standing, and continuing problem. We also know that government policies alone will not solve this crisis. We need to spur the production of all types of housing — owner-occupied and rental – by enabling more private market investment, innovation, and expertise. The Merkley/Smith bill will only limit the availability of affordably priced single-family rental housing, ensuring sought-after neighborhoods remain off limits to families for no other reason than they choose to rent. In their support of the bill, Sen. Merkley and Rep. Smith rely on out of context and unsubstantiated claims about the single-family rental home market and the role of housing providers within that market. First, it is blatantly inaccurate to refer to the vast majority of single-family rental home providers as “hedge funds.” They are not. The market is comprised of a wide diversity of owners and builders, including publicly traded companies, family businesses, and most significantly, individuals. Many of these owners and builders are integral parts of local housing ecosystems that make neighborhoods better places. In a study of rental housing providers published in December 2018, Fannie Mae reported “institutional investors” own just 1% of the single-family rental homes in the United States, compared to “small” and “very small” investors who own 95%. Second, the bill defines “hedge funds” as any entity with $50 million or more of assets. According to the National Association of Realtors, the median price of an existing home in the United States is $391,800. This means, anyone owning just 128 median-priced homes would be forced out of business by this bill. Third, the implication that single-family rental home providers — of any size — have an ability to “control” housing markets is completely unfounded. A “fact sheet” for the bill states large providers own 574,000 homes, without providing any context for understanding the impact on America’s housing market. The 574,000 homes owned by large providers represent less than 0.4% of the 145 million housing units in the country. This means, more than 99.6% of the housing in the United States is owned by someone other than the housing providers targeted by the Merkley/Smith bill. As for the country’s rental housing market, large providers of single-family rental homes own just 1.3% of the 44 million units. Fourth, the claim that providers of single-family rental homes are somehow negatively impacting homeownership is not supported by an extensive collection of data, most notably, the Census Bureau’s reporting of the U.S. national homeownership rate, which is higher today (66%) than five years ago (64.4%). Additionally, Census Bureau data show the amount of owner-occupied housing in the U.S. has increased by more than 10% (nearly 8 million units) over the last five years, while the amount of rental housing has increased by just 2.6% (1.1 million units). In a report published in July 2023, the Census Bureau revealed homeownership rates had increased across all U.S. regions and among all racial/ethnic groups between the years 2019 and 2022. For local context, homeownership rates are also higher today than five years ago in the home states of both Sen. Merkley (OR) and Rep. Smith (WA), and in each state’s largest MSAs (Portland and Seattle).Lastly, an NRHC report published in February 2023 showed the share of the single-family home market accounted for by rental homes has fallen 1.4% over the last decade. Americans Need More Options — Not Fewer The simple fact is, America needs more housing — of all kinds, owner-occupied and rental — to meet the needs of both homeowners and renters. With decades-high mortgage rates and rising home prices, Americans need more options to access quality, affordably-priced housing, not fewer. Research from housing industry consultant, John Burns Research & Consulting has shown the monthly cost of renting a single-family home is $1,000 less than the monthly cost of ownership. For many families, the monthly savings of renting a single-family home has a meaningful impact on a range of quality-of-life issues and provides for opportunities to live in neighborhoods and communities that otherwise might not be available. Providers of single-family rental homes are working diligently to address the supply challenges confronting today’s housing market. Over the past year, NRHC members have invested over $2 billion in home upgrades, renovations, and rehabilitations. Providers are investing in communities and neighborhoods and will continue to enhance and expand the diversity of housing opportunities available for families considering the advantages of leasing a single-family home. The bottom line is this: working families deserve access to great homes in great neighborhoods. No matter where Americans are in life, they should have a range of options to meet their individual housing circumstances. This is what the Merkley/Smith bill’s flawed

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A New Year’s Resolution to Consider (Please!)

FTC Targeting Hidden and Bogus Fees By David Howard If you are an owner of single-family rental homes and you have not yet started thinking about New Year’s resolutions, allow me to make a suggestion: “Focus on fees.” Actually, as I will explain, focusing on fees should be more than a New Year’s resolution. I only suggest it as such in the hopes that it will make it easier to remember. For the better part of the past year, the Biden administration and its allies in Congress, have been intent on examining the economic impacts of a wide assortment of business fees on the American consumer. Not only was the issue of “harmful consumer fees” highlighted this year in the President’s State of the Union address, but it has also served as the subject of a number of congressional hearings and agency pronouncements. The effort to eliminate so called “junk fees” — defined by the administration as “hidden, surprise fees that companies sneak onto customer bills, increasing costs and stifling competition” — is in full swing in Washington, DC, and rental property owners, both single-family and multifamily, need to make sure they are acting in ways that comply with the administration’s regulatory framework as it governs the treatment of these fees. And although that framework is still emerging, there are things rental property owners can do now to prepare for what is sure to come. What Rental Property Owners Should be Doing Right Now First, we know what regulators are looking for in identifying “junk fees.” On Oct. 11, 2023, the Federal Trade Commission (FTC) issued a proposed rule banning “junk fee practices that consistently confuse and trick consumers.” Specifically, the FTC stated it was targeting both hidden fees and bogus fees, which it defined as:  »         Hidden fees // mandatory fees that businesses hide or exclude when advertising prices, to include fees that do not appear as part of the initial price but emerge later to significantly increase the final price  »         Bogus fees // fees that are misrepresented or not adequately and appropriately disclosed, to include those that serve to confuse consumers as to their amount and purpose Second, we know how regulators will act to enforce provisions of the new regulations: companies found to be charging “junk fees” will be assessed monetary penalties and damages for incidents found to be harmful to consumers. Third, we know the new regulations will apply to owners of rental housing. In a statement issued along with the FTC’s October 11 announcement, the Biden administration commented, “[T]he rule would apply to industries across the economy, including event tickets, hotels and lodging, apartment rentals, car rentals, and more.” It is NRHC’s strong belief that owners of single-family rental homes should assume the rule’s inclusion of apartment rentals is a mere proxy for all rental housing. How Can You Protect Yourself? So, where do the regulations stand and how can you protect yourself in this new environment? As of the writing of this column in mid-November, there will be a 60-day comment period from the time the proposed rule is entered into the Federal Register, on Nov. 8. The proposed rule, subject to any alterations, will then be voted on by commissioners of the FTC. As to whether and when the rule will pass and eventually become law, there is no absolute way of knowing. However, the administration clearly wants the rule to pass and is putting muscle behind it, if for no other reason — setting the merits of the rule aside — a win on “junk fees” is seen as a boost to the President’s reelection campaign in 2024. For owners of rental housing, the endgame regarding fees comes down to disclosure and transparency. And lots of it. Be clear and straightforward about your fee structure, make sure all fees are in the lease, and check with legal counsel to make sure you are protected. NRHC continues to engage with members of the administration and agency officials on the issue of rental housing fees, and we will be routinely communicating new developments and regulatory decisions with the membership as they occur. As to NRHC statements on the issue, please refer to the Newsroom of the NRHC website at www.rentalhomecouncil.org.

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