The Real Estate Roundtable today submitted a suite of policy suggestions (revised January 21, 2020) to the Department of Housing and Urban Development (HUD) to improve access to affordable housing.  The comments respond to HUD’s Request for Information seeking public feedback on laws, regulations, land use requirements and administrative practices posing barriers to housing affordability and availability.

The Roundtable’s comments offer policies intended to bring more safe, decent, and affordable housing within reach of indigent and low-income households.  It also urges HUD to focus on the scarcity of homes accessible to middle class families, and recommends policies to increase both purchase and rental options for teachers, first responders, and other contributors in America’s workforce. 

Recognizing “there is no single, best solution to promote housing affordability and increase housing supplies,” The Roundtable suggests a number of strategies to address the challenges and opportunities for public, low-income, and middle class housing, including:

• Expand the Low-Income Housing Tax Credit (LIHTC) program, and provide a similar tax incentive focused on housing development for America’s middle class;
• Use GSE reform to re-focus the mission of Fannie Mae and Freddie Mac on liquidity in the mortgage markets for low- and middle-income home buyers, while also encouraging GSE interventions to enhance middle class rental housing;
• Reform procedures and rules under the Community Reinvestment Act (CRA), so banks can receive “credit” when they serve lending needs and increase housing supplies in middle class neighborhoods (80-120 percent of Area Median Income);
• Foster a Yes in My Backyard – or “YIMBY” – environment whenever states and cities seek the “carrot” of federal grants, that obliges localities to implement land-use laws to deliver high density zoning needed to entitle affordable housing projects;
• Promote greater production of manufactured housing as a high quality, less costly alternative to site-built homes; and
• Direct the General Services Administration to prioritize increasing affordable housing supplies when it disposes of surplus federal properties for re-development by states, localities, and the private sector.

The comments conclude with an assessment of rent control laws which have “a long-term effect to worsen the housing crisis,” The Roundtable wrote to HUD.  The letter notes that numerous studies show these laws decrease housing supplies and can illogically benefit high-income earners who have no incentive to move out of controlled units.

In a related development this week, the National Multifamily Housing Council (NMHC) released a report on “Rent Control: A 2019 Recap and a 2020 Look Forward,” which provides a national assessment of rent cap efforts by multiple states. The new report supplements NMHC’s Housing Affordability Toolkit that explains the cost drivers behind apartment development and delves into best practices to address the affordability challenge. 

During The Roundtable’s January 28 State of the Industry meeting in Washington, DC, a discussion of housing availability and affordability will feature Federal Housing Finance Agency Director Mark Calabria and Rep. Patrick McHenry (R-NC), Ranking Member of the House Financial Services Committee.

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The Treasury Department on Jan. 13 issued two final regulations that increase the U.S. executive branch's ability to address national security concerns arising from certain foreign investments, including real estate transactions.  (Treasury’s full text of the final regulations & related resources)

• The new rules, which go into effect Feb. 13, will comprehensively implement the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA).  The Act authorizes the Committee on Foreign Investment in the United States (CFIUS) to review certain transactions involving foreign investment to determine potential effects on U.S. national security.
  
  
• FIRRMA, enacted with bipartisan support in August 2018, established CFIUS’ jurisdiction over certain real estate transactions.  It also broadened CFIUS’ jurisdiction over certain non-controlling investments into certain U.S. businesses involved in critical technology, critical infrastructure, or sensitive personal data.
  
  
• The new regulations were released in two parts: Provisions Pertaining to Certain Investments in the United States by Foreign Persons (31 C.F.R. part 800); and Provisions Pertaining to Certain Transactions by Foreign Persons Involving Real Estate in the United States (31 C.F.R. part 802).  (Skadden, Jan. 16 – "CFIUS’ Final Rules: Broader Reach, Narrow Exceptions and Foretelling Future Change")
  
  
• “These regulations strengthen our national security and modernize the investment review process,” said Treasury Secretary Steven T. Mnuchin. “They also maintain our nation’s open investment policy by encouraging investment in American businesses and workers, and by providing clarity and certainty regarding the types of transactions that are covered.”  (Treasury statement, Jan. 13)
  
  
• The new rules create exemptions to CFIUS jurisdiction for so-called “excepted foreign states” that include nationals, entities, and governments of certain countries.  The current list of eligible foreign states includes Australia, Canada and the United Kingdom, but may expand to include other nations in the future.
  
  
• The Real Estate Roundtable submitted comments to Treasury last year about the original, proposed CFIUS rules and requested clarifications about how investments in commercial real estate would be affected.  (Roundtable Weekly, Sept. 20, 2019 and Roundtable Letter, Oct. 17, 2019)
  
  
• FIRRMA expands the list of covered transactions to include some foreign purchases and leases of real estate near military and other strategic facilities.  Responding to concerns raised by The Roundtable and other industry groups, language is included in the rules that exempts real estate located in an 'urbanized area' from the criteria of a covered transaction.  The Census defines an urbanized area as one comprising more than 50,000 people.
  
  
• The new rules include other modifications to the proposed rules affecting real estate transactions.  The final rules lower the threshold for investors to qualify as “excepted investors.”  A foreign person who now qualifies as an excepted investor will not be subject to CFIUS’ jurisdiction for non-controlling investments regarding real estate transactions.  (Law 360, Jan. 15)
  
  
• A Ropes & Gray Jan. 15 summary – “CFIUS Issues Final Rules Implementing FIRRMA: Key Changes and Developments" – reports that an entity may be deemed an “excepted investor” if, among other requirements:
  
  
  • 75 percent or more of the members and 75 percent or more of the observers of the board of directors (or comparable body) are citizens of either the United States or an excepted foreign state – instead of the 100 percent requirement articulated in the Proposed Rules, and
    
    
  • All investors that hold a 10 percent or greater equity interest are citizens of either the United States or an excepted foreign state – instead of the 5 percent or greater requirement set forth in the Proposed Rules.
    

According to a Jan. 16 JD Supra report — “Key Takeaways from CFIUS Final Rules Implementing FIRRMA  — the final rules also broaden the covered real estate exception for retail trade, accommodation, and food service stores.  The new rules apply the exception to leases and concessions of real estate that are “used only for the purpose of engaging in the retail sale of consumer goods or services to the public.”

CFIUS also intends to make a web-based tool available in the near term to assist the public with assessing what qualify as “covered real estate transactions” that are potentially subject to CFIUS review.

With these final rules, investors and companies now face a more complicated CFIUS framework that accounts for evolving national security risks involving foreign investments and real estate transactions.   

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) and Homeland Security Task Force (HSTF) plan to study the 132-page rule (part 802) affecting foreign transactions in U.S. real estate for more insight into how the new rules may impact commercial real estate investment.

The Labor Department on Jan. 12 released its final “joint employer” rule, returning to a standard where businesses can only be held responsible for workplace violations and collective bargaining obligations regarding workers over which they have “direct and immediate” control.  (Final Rule, Federal Register and Fact Sheet, Dept. of Labor).

• This week’s rule takes effect on March 16.  It upholds a federal labor standard that was in effect for more than thirty years, before it was upended by a National Labor Relations Board (NLRB) decision in 2015. 
  
  
• That 2015 NLRB decision instituted an expansive interpretation of workplace relationships, where employees hired by a local franchise operator (or subcontractor) could also be considered an employee of the “parent” company (or general contractor) that had no role in hiring decisions.  The new regulation revives the long-standing rule that two separate employers are considered “joint employers” only where they both have “direct and immediate control” over hiring standards, employment terms and working conditions. 
  
  
• In practical terms, the Jan. 12 rule means that a local franchisee remains obligated to sit down and negotiate with unionized employees – but the remote franchisor company that never hired the workers has no collective bargaining responsibilities to them.  Similarly, a subcontractor that commits workplace safety violations is responsible to its laborers, but a general contractor is not similarly responsible unless it has “direct and immediate” control over job site conditions.
  
  
• Advocacy over the joint employer rule has spanned the Obama and Trump Administrations.  For example, as part of a broad multi-industry coalition, The Roundtable wrote to congressional leaders back in 2017 about the harm to businesses caused by the NLRB’s Obama-era position, essentially advocating for the Labor Department’s rule handed down this week. (See past Roundtable Weekly stories – March 2, 2018 / Dec. 15, 2017 / Nov. 10, 2017 / Sept. 11, 2015)
  
  
•  On Jan. 12, DOL Secretary Eugene Scalia and White House Chief of Staff Mick Mulvaney wrote in the Wall Street Journal about the new joint employer rule.

“The new rule also gives companies in traditional contracting and franchising relationships confidence that they can demand certain basic standards from suppliers or franchisees—like effective antiharassment policies and compliance with employment laws—without themselves being deemed the employer of the other company’s workers. That will help companies promote fair working conditions without facing unwarranted regulatory costs,” according to the two Trump Administration officials. (Wall Street Journal, Jan. 12)

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