REI INK

From the Hill

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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An Introduction to “From the Hill”

Providing Insight and Perspective to the Real Estate Investor By David Howard The National Rental Home Council (NRHC) is proud to have been invited by REI INK to write a column focused on relevant policy issues and developments on a federal, state, and local level impacting the single-family rental home industry. Each month we’ll endeavor to provide insight and perspective on both the opportunities and challenges shaping the industry’s policy agenda, and we’ll attempt to do so in a way that is useful and actionable for you. The quality of REI INK’s readership and breadth of coverage offer NRHC a compelling opportunity to share information concerning regulatory and legislative happenings affecting the course of the industry. And when I say affecting the course of the industry, what I mean is the decision-making impacting your business and your investment. Single-family rental homes play a critical role in the U.S. housing market, accounting for 40% of all the rental housing in the country. Housing touches on every aspect of people’s lives and is central to creating strong communities and vibrant neighborhoods. Because housing is such a central part of lives, we believe all Americans should be supported by policies that provide access to quality housing, no matter where they are on the continuum of renting or owning. This is only possible when industry and policymakers work collaboratively to create the best mix of housing possible. NRHC’s policy agenda is focused squarely on the effort to encourage and incentivize responsible development and investment. Specifically, our platform encompasses the following priorities:  »         Addressing the housing supply crisis by investing in communities and neighborhoods to support a housing market that can meet the needs of all Americans and their families  »         Enhancing the diversity of housing opportunities by creating and delivering a greater range of choice for housing consumers  »         Advocating for common sense regulation governing housing development, specifically reducing NIMBYism at the local level  »         Creating policy that allows builders to do what they do best — build more housing, both ‘for sale’ and ‘for rent’  »         Opposing efforts to bottleneck the flow of capital and investment into local housing markets Additionally, NRHC firmly believes in the importance of fostering public policies that support homeownership and provide Americans with the opportunity to become homeowners. But, we also recognize that homeownership may not be the right option for everyone at every point in their lives. For this reason, we encourage the development of policies that accommodate the diversity of needs facing housing consumers, policies that are meant to expand the range of options available for all Americans in the pursuit of quality housing. The ongoing development and maturation of the single-family rental home industry is focused on providing a viable source of stabilized long-term rental housing responsive to the needs and lifestyle preferences of today’s housing consumers. To the extent that we are able to provide more housing, we are better positioned to meet those needs. We believe this to be the most effective way to alleviate current and future housing supply challenges and to address the needs of residents. Additional oversight initiatives and regulatory barriers only serve to limit the ability of rental housing providers to do what they do best — provide more housing. Further, expanded regulatory and oversight measures are especially concerning for the individuals and small local businesses who collectively account for over 85% of the market for single-family rental homes. Thanks again to REI INK for the opportunity to share with you news and insight on the policy issues I find most pressing for the industry. I hope you find this column to be helpful, or at least an interesting read. I am always anxious for feedback, input, and occasional criticism so be sure to email me at dhoward@rentalhomecouncil.org with any comments or thoughts you may have.

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