Last week, the Senate passed the 21st Century Road to Housing Act by a large bipartisan margin of 89-10, sending a major piece of housing legislation to the House of Representatives for its approval. The Senate combined its bill with a version passed by the House earlier, expanding and revising certain provisions, and excluding others. Both bills aim to increase the supply of affordable housing. Specifically, the Senate’s bill would increase the supply of affordable housing by, among other things, streamlining regulatory reviews for housing projects, promoting housing development in opportunity zones, increasing Federal Housing Administration loan limits and supporting manufactured housing.
While NAIOP and it national housing association allies supported legislation designed to increase housing supply and help address the current housing affordability crisis in many of our communities, the Senate bill contains a very problematic provision that would have the opposite effect. The Senate included language, demanded by President Donald Trump, designed to restrict the purchase of single-family homes by large institutional investors that own 350 homes or more. But in doing so, it would also undermine a nascent build-to-rent (“BTR”) industry that is increasing the supply of rental housing available to families – an outcome we do not believe was intended.
Preventing large institutional investment companies from purchasing existing single-family homes for rental – essentially taking them off the market for families seeking homeownership – has become a potent populist issue and one that Trump has embraced, issuing an executive order earlier this year titled “Stopping Wall Street from Competing with Main Street Homebuyers.” This was one issue on which Trump and Massachusetts Senator Elizabeth Warren agreed.
However, Section 901 of the Senate legislation establishing the institutional investor ban also includes language that would require BTR developers, who are building units meant specifically to create rental communities, to sell these units within seven years to individual buyers. This seven-year disposition requirement would effectively eliminate the production of BTR housing at a time when public policy should be increasing housing supply and expanding rental choices for families.
Recently, BTR housing has emerged as a major source of new rental housing production for families who prefer these types of units to apartments. Many times the underlying zoning for these developments is multifamily, and the rental homes are all located on a single tax parcel and were never intended for individual sale. These communities often come with amenities and are fully staffed with onsite maintenance, the costs of which a future homeowners association would be unable to assume. The appeal and benefit of these communities is that residents are not forced to shoulder many of the maintenance responsibilities or costs of homeownership.
Notably, Trump’s executive order directing federal agencies to stop assisting large institutional investors from purchasing existing single-family homes provides a specific exemption for BTR communities, stating that guidance from federal agencies issued as a result of the order “shall include appropriate, narrowly tailored exceptions for build-to-rent properties that are planned, permitted, financed, and constructed as rental communities, and such other appropriate, narrowly tailored exceptions as the applicable agency may determine appropriate . . . ”
During the Senate floor debate of the housing bill, some Democrats also acknowledged that the seven-year disposition language would need to be revised. Senator Brian Schatz (D-HI), for example, warned that the bill could undermine housing production, saying that ”while there are a lot of good things in this bill that are kind of on the pro-housing supply side, what we are about to do is essentially ban a specific kind of housing.”
Procedurally, the House could vote on the Senate-passed legislation without any changes, or it could demand changes, which would require that both chambers pass a compromise, identical bill. NAIOP and national housing industry advocates have raised serious concerns with members of the House and Senate over the BTR language, and several House Republicans have called for revisions, as well as other changes to the Senate legislation before the bill is allowed to be voted on in the House. Representative French Hill (R-AR), chairman of the House Financial Services Committee with jurisdiction over housing legislation, is also calling for changes.
While the sponsors of the Senate’s legislation were hoping that Trump would put pressure on House Republicans to force a vote, he has not in fact done so. For now, it seems the House and Senate will have to work out their differences on BTR and other issues before the major housing legislation can be sent to the president’s desk for his signature.
