Summary

There is a chronic shortage of housing in the U.S. that is driving up housing prices and making it more difficult for lower-income individuals to find safe, affordable housing. Housing production in the U.S. is not keeping pace with expanding housing needs. The underbuilding gap in the U.S. now totals more than 5.5 million housing units. The impact of this growing problem is far-reaching and undermines economic growth—particularly in urban areas. Sweeping bipartisan housing legislation has cleared both chambers but is stalled in the House pending a path forward on reconciliation. Key issues in the Senate-passed bill are proposed restrictions on institutional investment in residential real estate (Section 901). RER recently released a white paper authored by Paul Clement of Clement & Murphy, PLLC, finding that Title IX of the Senate-passed bill raises serious constitutional concerns under the Takings Clause, equal protection, and federalism principles, through unprecedented federal restrictions on certain single-family housing owners. RER and coalition partners have been working to eliminate or amend Section 901 and support measures focused on boosting housing supply and capital formation.

Key Takeaways

Safe, decent, and affordable housing is critical to the well-being of America’s families, communities, and businesses. The COVID-19 pandemic intensified the nation’s persistent housing crisis and heightened the need to expand the supply of affordable housing.

Addressing the housing crisis requires a national policy transformation, including a comprehensive
strategy to expand supply.

Policymakers should look at the full scope of tools available to bridge the underbuilding gap as part of this national strategy, including:

• Policies that preserve the flow of institutional capital into residential real estate and support a robust single-family rental (SFR) market;
• Yes In My Backyard (YIMBY) policies;
• Property conversion incentives;
• Reforms to zoning and permitting rules;
• Reforms to the GSEs that continue to protect financial stability and access to affordable mortgages;
• Further improving Opportunity Zones (OZs);
• Enacting the Housing Affordability Act; and
• Further expanding the Low-Income Housing Tax Credit (LIHTC).

RER has partnered with 16 other national real estate organizations to jointly advocate for policies that will help to increase housing supplies, grow jobs, and modernize our nation’s critical infrastructure.

See the full fact sheet.

Summary

The U.S. faces a severe shortage of affordable housing as production has failed to keep pace with demand. At the same time, certain other commercial real estate assets like office buildings are under significant stress due to structural shifts in workplace demand. RER is encouraging lawmakers to help revitalize cities, boost local tax bases, and address housing challenges by enacting a tax incentive and federal loan support for converting older, underutilized buildings to housing. RER also supports a meaningful expansion of the Low-Income Housing Tax Credit (LIHTC).

Key Takeaways

Congress should help expand and grow the supply of affordable and workforce housing by investing greater resources in time-tested tax incentives like the LIHTC and adopting creative new approaches that support the conversion of underutilized, existing buildings to housing.

Property conversions are a cost-effective way to increase housing supply, create jobs, and generate critical sources of local property tax revenue.

The LIHTC is an efficient, market-based housing solution that relies on the private sector to finance, build, and operate affordable housing by creating a federal incentive for new construction and redevelopment.

See the full fact sheet.

Summary

In response to the Global Financial Crisis in September 2008, the U.S. Treasury placed Fannie Mae and Freddie Mac into conservatorship under the oversight of the Federal Housing Finance Agency (FHFA). This action was intended to stabilize the mortgage market and restore confidence in the government-sponsored enterprises (GSEs). It also involved an injection of $190 billion of capital, while creating an explicit U.S. government guarantee. The ongoing conservatorship means that the government has total control over these huge government-backed mortgage enterprises, with $7.7 trillion in combined assets.

Conservatorship was not meant to be indefinite. More than 18 years later, the GSEs are in a much stronger financial position and have repaid the $187 billion used to preserve Fannie and Freddie during the financial crisis. Yet, retiring the government’s preferred and common equity stake would require a refinancing of massive scale, a taxpayer gift from the U.S. Treasury of tens of billions of dollars to Fannie and Freddie, or both.

The GSEs are currently "effectively owned" by the U.S. Treasury, which holds senior preferred stock and warrants for 79.9 percent of their common stock. While they have built significant reserves, the Congressional Budget Office (CBO) projected that their equity value by early 2027 would still fall short of full recapitalization requirements.

Policymakers have increasingly discussed various reform proposals, including ending the conservatorship, full privatization, hybrid models, and continued government backing with additional safeguards. The administration has set reform as a key priority, yet concrete details have yet to emerge.

As policymakers consider privatization or structural reforms, it is essential to the real estate industry and the broader economy to preserve a well-functioning housing finance system that supports homeownership, expands affordable housing supply, and sustains economic growth.

Key Takeaways

A complete, rapid exit from conservatorship is considered unlikely in the immediate term due to the technical complexity of raising enough capital to meet regulatory requirements. Instead, a gradual transition involving partial share offerings is more likely.

A critical future debate is whether the government will provide a "paid-for explicit guarantee" on GSE mortgage-backed securities (MBS). Without this, critics warn mortgage rates could spike due to increased risk for private investors.

While the House Financial Services Committee has explored a legislative overhaul, no legislation has been introduced. Some experts believe the administration will try to use its existing authority to restructure the Treasury's senior preferred stock into common shares.

However, one key concern for a successful exit is the "explicit guarantee." If the government doesn't legally guarantee the mortgages post-exit, mortgage rates could rise by 0.2 to 0.8 percentage points ($500-$2,000 more per year for a typical buyer). An explicit, paid-for guarantee would likely stabilize the 30-year fixed-rate mortgage but requires an act of Congress.

If Fannie and Freddie are transitioned to private ownership, the process must ensure financial stability, avoid market disruptions, and protect access to affordable mortgages.

Reforms to the GSEs should be part of a larger national transformation in housing policy to unleash a wave of new housing construction and fully address the underbuilding gap, including Yes In My Backyard (YIMBY) policies, property conversion incentives and reforms to zoning and permitting rules, Opportunity Zones, and the Low-Income Housing Tax Credit (LIHTC).

See the full fact sheet.