What to Know, What to Watch For & How to Prepare
by Tyler Craddock
In March of this year, the U.S. Senate passed the 21st Century Renewing Opportunity in the American Dream (ROAD) to Housing Act (H.R. 6644) by a vote of 89-10. This was a strong bipartisan showing and reflected broad agreement that the country’s housing shortage demands action. However, there are some potential pitfalls for real estate investors and property managers, specifically, in this bill, including:
Potentially problematic language that could inadvertently classify professional property managers as “large institutional investors,” a classification in the real estate space reserved for true institutions and not property managers or individual owners of large portfolios but less clearly defined in the legislative space. This could create scenarios in which property managers could be subjected to the full regulatory weight of the legislation, even though they have no ownership interest in the properties they manage.
A provision that would require subject entities — institutional, individual, or otherwise — to divest themselves of built-to-rent (BTR) single-family properties after seven years of ownership. Whether applied solely to true institutional investors or across the broader and more problematic spectrum, this seven-year deadline for divestment will create uncertainty in the market that will deter developers and capital from entering the BTR space entirely, resulting in fewer homes being built at precisely the time at which our country desperately needs more housing.
The National Association of Rental Property Managers (NARPM) has been actively campaigning for clarification of institutional investor language and the replacement of the mandatory-divestment provision with incentives for new construction since the inception of the legislation and will continue to do so, encouraged by a statement from the House of Representatives Financial Services Committee chairman, French Hill (R-AR), in which he said, “It is critical we get the details right and foster more affordable choices for all Americans. It is critical we get the details right and mitigate some of the concerns raised by House members with the Senate bill.”
Ranking Member Maxine Waters (D-CA) echoed these concerns in a letter to the House Democratic Caucus, calling for a conference committee to formally reconcile the House- and Senate-passed versions of the bill, noting that the Senate version introduced new restrictions on housing development that threaten to undermine housing production and raise concerns among housing providers and advocates nationwide.
How to Prepare for the ROAD Ahead
At present, it is important we remember the legislation has not yet passed. Logistically, now that the Senate has passed their version of the bill, the House can pass the Senate bill as it left the Senate, request an informal or formal conference with Senate, or do nothing (in which case, the legislation dies). At present, the language around BTR communities and how they may be regulated under this bill may not only include traditional BTR communities, but also 55+ communities, which is certainly not the intent.
Investors should do their best to remain informed about how discussions around the legislation are proceeding, which may be difficult since it is unlikely the House will put this bill back on the floor until there is some consensus about how they want to proceed.
Individual investors should not make the mistake of assuming that because they are not institutional, they will not be affected. By being cognizant of the risk and vocal when misconceptions arise or erroneous language is in play and by being vocal about the risk through groups like NARPM and by directly letting their own representatives know there is potential harm to the housing market in the verbiage, investors can help protect themselves and the industry.
Sidebar
The Importance of Plain Language
When legislators and policymakers dive into the language of a bill and how to apply it, they carefully read every word to determine what it means for the enactment of a law or enforcement of a policy or regulation. It is that language, called “plain language,” that plays an essential role in the application of a new bill.
In everyday life, a misspoken word will usually not be a very big deal. People use the wrong words for things all the time with no negative fallout from doing so whatsoever because in most cases, the people who hear those words automatically fill in the correct words. In fact, scientists recently discovered that when we hear sounds and words, there is a three-step process that happens in our brains that helps us resolve ambiguity and pick the “best guess” option for what we heard.
We do it every time we hear someone say something. It is why you might initially think you did not fully understand someone, and then, by the time they have repeated themselves, you already know what they said. Sometimes this is called “neural autocorrect,” and it is extremely helpful for communication.
Unfortunately, there is no “autocorrect” when the language in legislation is not quite right. The wrong words can result in big “side effects” that sometimes are completely unintended. Policymakers write in what is called “plain language” to help the public and each other know exactly what they are trying to accomplish with legislation, but sometimes, even the plain language gets confusing or creates inadvertent consequences. It is the responsibility not just of lawmakers but also all citizens to work hard to make sure that the plain language uses the right words in new legislation.
Learn more about how NARPM works hard to make sure property management companies and the real estate industry has a strong advocate in policy at NARPM.org.
