The Biden administration today revealed a suite of federal resources—including low-interest loans—to assist commercial to residential conversions that increase housing supply, revitalize urban downtowns, and cut climate pollution. (White House fact sheet; Bloomberg, Oct. 27).
Holistic Federal Strategy
Roundtable President and CEO, Jeffrey D. DeBoer said, “The pandemic’s indelible impact on where Americans live and work continues to reverberate through the real estate industry, which is at the center of this societal transition. The Roundtable supports innovative policy that reimagines the adaptive reuse of CRE, rejuvenates affordable housing and urban downtowns, and addresses the climate crisis. The guidance released by the White House today checks all these boxes—and bolsters our agenda to improve the health of our cities, local tax bases, and small businesses.”
Among the actions announced today, conversion projects located near mass transit hubs would be eligible for low-interest financing under U.S. Department of Transportation programs. “TIFIA” and “RRIF” loans are pegged to US Treasuries at 5.03 percent interest (today’s rates).
Transit-oriented projects supported by TIFIA and RRIF financing do not require affordable housing units—although they can be “stacked” with projects supported by low-income housing tax credits and local laws may have independent inclusionary zoning mandates. (FAQs on project eligibility)
The White House announcement also directs the General Services Administration (GSA) to identify “surplus” federal properties that private developers may help to convert to housing.
A fact sheet summarizing the administration’s actions indicates that training workshops will be held this fall for real estate owners, developers, and lenders on how to use federal programs included in the White House’s new “Commercial to Residential Conversions” guidebook, which describes how 20 programs across six federal agencies can be used to support adaptive re-use projects.
The Administration’s guidebook also explains how mortgage insurance and grants from the Department of Housing and Urban Development (HUD) can leverage state, local, and private sector capital as layers in the capital stack to support adaptive reuse.
Adaptive Reuse a “Win-Win”
Real estate market conditions with high office vacancies “present[ ] an area of opportunity to increase housing supply while revitalizing Main Streets,” said National Economic Council Director Lael Brainerd. “It’s a win-win.” (POLITICOPro, Oct. 27) (WH Council of Economic Advisors blog post)
White House efforts to assist property conversions lands as national office vacancy stands at nearly 18 percent—with some major metro areas experiencing vacancies higher than one-fifth of their entire inventory—according to a report from analytics firm Yardi Matrix released on Thursday. (Commercial Observer, Oct. 26)
Architectural firm Gensler released a report on Monday that estimates 25% of under-performing U.S. office properties are suitable candidates for conversion projects.
The initiative builds on the Biden Administration’s announcement last July to boost the nation’s housing supply. (Roundtable Weekly, July 28). The Roundtable will continue to serve as a conduit between our members and the Biden Administration to help design impactful policies that can assist with office to residential conversions.
The Roundtable and an industry coalition recently submitted separate comments in response to a Request for Input from the Federal Housing Finance Agency (FHFA) on multifamily properties with mortgages backed by Fannie Mae and Freddie Mac (the Enterprises). The letters encourage the FHFA to remain focused on the Enterprises’ stated mission “to serve as a reliable source of liquidity and funding for housing finance and community investment.” The industry comments also raise concerns about the FHFA imposing counterproductive property restrictions, such as rent control, on multifamily properties backed by loans from the Enterprises. (Roundtable comments, July 28 and Industry coalition comments, July 31)
The Roundtable’s comments encouraged the FHFA—the regulator and conservator of the Enterprises—to focus on its pivotal role in America’s housing finance market by maintaining Enterprise support of the multifamily affordable housing market, particularly for low-income households. The letter noted that the imposition of counterproductive restrictions on Enterprise-backed financing and private rental housing providers would lead to less investment and development in the affordable housing market, especially during this time of market uncertainty.
The Roundtable letter expressed support for measures to:
Enhance the Low-Income Housing Tax Credit (LIHTC);
Support initiatives that explicitly tie federal funding of infrastructure and other federal funding for “green” initiatives to local assurances to improve exclusionary zoning;
Reduce regulatory costs, including a broad range of fees, standards and other requirements imposed at different stages of the development and construction process; and,
Stabilize the GSEs to ensure appropriate liquidity in mortgage markets.
The Roundtable’s July 28 letter also noted the important role of institutional investors as a source of capital for affordable housing. The comments emphasized how FHFA should not disincentivize this important source of capital for expanding the housing infrastructure.
The real estate coalition’s July 31 letter reiterated that the best way to help the nation’s renters find affordable housing is to keep the Enterprises focused on financing housing creation. The real estate organizations note that rental housing is already a heavily regulated industry that should not be subject to a one-size-fits-all set of new “protections” that conflict with the unique housing needs of individual markets.
National Multifamily Housing Council President Sharon Wilson Géno said, “When we have market dynamics like we do now, where we have really high interest rates and difficulty accessing capital, the GSEs are even more important. If they start putting mandatory restrictions and rent caps on their products, people are going to go back into that private market at higher cost, and that’s going to increase rent and decrease affordability.” (PoliticoPro, Aug. 1)
This week, Senate Banking Chair Sherrod Brown (D-OH) and 17 Senate Democrats also responded to the FHFA by supporting rent increase limits and other tenant measures on properties with federally backed loans from the GSEs. (Senate Banking Committee letter, Aug. 1)
The Real Estate Roundtable submitted comments today on a proposed rule from the IRS and Treasury Department regarding “bonus” tax credits for renewable energy investments in low-income communities, passed by Congress as part of the Inflation Reduction Act (IRA). (Roundtable Comment Letter, June 30)
Taxpayers must apply to the IRS through a competitive process to receive any bonus credits under the Program.
The bonus can provide extra tax credits to help cover the costs of solar, wind, and storage facilities. See The Roundtable’s chart, “Base” and “Bonus Rate” Amounts Relevant to Commercial and Multifamily Buildings (May 25, 2023).
The bonuses are available only for solar or wind projects that generate under 5 megawatts of electrical output. The Roundtable requested a more straightforward rule for what constitutes a “single project” for purposes of this output threshold.
The IRA’s text requires that multifamily building owners must share “financial benefits” of renewable energy produced on-site with tenants. The Roundtable’s comments stressed that any such benefits should not depend on utility bill savings that accrue directly to tenants—because owners cannot measure, track or control energy consumption in sub-metered leased units.
Low-income housing supported by non-federal programs through state- and local-level housing finance agencies or public housing authorities should also be eligible for the IRA’s low-income bonuses.
The proposed rule would offer a preference, not based in the statute, for non-profit owners to receive bonus credit allocations. The Roundtable’s comments urge there should be no bias against business taxpayers to receive the bonus to further the Biden administration’s climate policy goals for rapid deployment of renewable energy investments in low-income communities.
Future Roundtable comments on IRA topics are in the works. Feedback on a proposed rule to buy-and-sell certain clean energy credits is due August 14. In addition, proposed rules to implement the 179D tax deduction for energy efficient retrofits of commercial buildings are expected this summer.
The Real Estate Roundtable and 18 other real estate organizations urged Congress on May 23 to work with the Biden administration, housing providers, lenders, and other stakeholders to pursue bipartisan solutions to increase the nation’s supply of housing. (Coalition letter, May 23)
“Yes in My Backyard”
This week’s joint letter from the Housing Affordability Coalition detailed a wide range of legislative proposals and policy measures that lawmakers should immediately enact to address the nation’s housing affordability crisis.
The industry coalition supports legislation that would eliminate harmful land use policies, promote affordable housing near public transit, and support local government efforts to expand housing supply.
Separately, The Roundtable joined another coalition of 285 housing, business, and municipal organizations with a show of focused support for the bipartisan, bicameral Yes In My Back Yard (YIMBY) Act, reintroduced on May 18. (YIMBYCoalition letter)
The bill requires localities that receive certain federal HUD grants to submit a public report on whether they have local policies in place that remove exclusionary zoning tactics. Encouraging high-density development is “an essential first step in decreasing barriers to new housing of all price levels,” the YIMBY Act coalition letter states.
The YIMBY Actpassed the House without opposition in 2020. It is championed in the Senate (S. 1688) by Todd Young (R-IN) and Brian Schatz (D-HI), and in the House (H.R. 3507) by Reps. Derek Kilmer (D-WA) and Mike Flood (R-NE). (YIMBY Actsummary by Up for Growth)
This week’s Housing Affordability Coalition letterencourages Congress to expand the low-income housing tax credit, create a new middle-income housing tax credit, and establish a dedicated tax incentive to promote the conversion of underutilized office and commercial buildings to rental housing.
The letter also supports tax measures that have not been reintroduced yet in the 118th Congress, including incentives to encourage neighborhood revitalization, accelerated depreciation of high-performance building equipment, and reduction of the basis increase necessary to qualify a multifamily rehabilitation project for Opportunity Zone purposes.
Bipartisan, bicameral legislation introduced last Thursday would significantly expand and improve the low-income housing tax credit (LIHTC). The tax credit, strongly supported by The Real Estate Roundtable, subsidizes the construction, rehabilitation, and preservation of affordable rental housing for low- and moderate-income tenants.
Led by Sens. Maria Cantwell (D-WA) and Todd Young (R-IN), along with Reps. Darin LaHood (R-IL) and Suzan DelBene (D-WA), the AHCIA (H.R. 3238 and S. 1557) has already garnered nearly 90 cosponsors.
Roundtable President and CEO Jeffrey DeBoer said, “The low-income housing tax credit is a critical and well-designed tool that addresses a pressing issue throughout the country–the lack of affordable rental housing. LIHTC harnesses market forces and the power of the private sector to incentivize the construction and rehabilitation of affordable homes. Countless studies have demonstrated LIHTC’s cost-effectiveness. Inflation has taken a toll on working Americans, but Congress can help reduce the burden of high housing costs by passing the AHCIA reforms.”
A March 7 Senate Finance Committee hearing showed bipartisan policymaker consensus on the need to increase the supply of affordable housing by expanding the LIHTC and other tax incentives. The National Multifamily Housing Council (NMHC) and National Apartment Association (NAA), two key supporters of the AHCIA, offered joint testimony during the hearing. (Roundtable Weekly, March 10)
Boost the allocation of low-income housing credits to states by restoring the temporary 12.5% increase enacted in 2018 (expired at the end of 2021) and phasing in a 50% increase in the LIHTC allocation cap over two years.
Lower the threshold of private activity bond financing—from 50 to 25%—required to trigger the maximum amount of 4% housing credits available to individual properties.
The bill would also ensure that low-income housing credit projects that seek to maximize their energy efficiency through use of the section 179D commercial building deduction are not penalized by existing provisions of the law that reduce the basis of the development by the 179D deduction amount.
While movement on LIHTC legislation is unlikely before the debt ceiling debate is resolved, the broad-based, bipartisan support for AHCIA could lead to Congressional action on the bill later in the year. (News – The Affordable Housing Tax Credit Coalition)
In related news, the Internal Revenue Service (IRS) released a notice this week on “made in the USA” guidance that can increase clean energy tax credits. The Inflation Reduction Act(IRA) offers a “bonus” tax credit of up to 10% for solar, wind, battery storage, and other projects that use iron, steel, and components manufactured in the U.S. (JD Supra, May 16)
The “domestic content” notice provides initial guidance until the Treasury Department proposes rules on the subject. A fact sheet prepared by The Roundtable keeps track of various federal agency actions that implement IRA tax incentives of significance to the real estate sector.
A new report from real estate brokerage Redfin shows that the number of affordable home listings fell 53% from last year—the largest annual drop in Redfin’s records, which date back to 2013. (The Hill and Redfin news release, March 3)
The National Low Income Housing Coalition estimates there is a shortage of 7 million affordable and available rental homes in the United States, while a Rosen Consulting Group study reports the underbuilding gap is 5.5 million units.
During the hearing, NMHC President Sharon Wilson Géno offered joint testimony that included recommendationsto address the affordable housing crisis, including tax policy, regulatory reform, rental assistance, and development incentives. (NHMC News | Video of Géno’s remarks and Written testimony, March 7)
Wyden’s DASH Act would strengthen the LIHTC and offer a new Middle-Income Housing Tax Credit (MIHTC) that would provide a tax credit to developers who house tenants between 60 and 100% of the area’s median income. (DASH Act Text | Bill Summary | Section-by-section)
The AHCI would expand the pool of tax credits allocated to states for new affordable housing, make it easier to combine LIHTC with other sources of capital like private activity bonds, and facilitate LIHTC rehab projects.
Wyden added in his opening comments, “Members of Congress also need to keep pushing state and local authorities to cut back on the thicket of zoning rules that get in the way of building the housing Americans need.”
The Roundtable has supported these Senate bills since they were introduced last year. Real Estate Roundtable President and CEO Jeffrey DeBoer previously stated, “Overly restrictive land-use and zoning policies, construction cost increases, and labor shortages are deepening our housing challenges, which now extend across the entire country. Government at all levels needs to be part of the solution, not part of the problem.” (Roundtable Weekly, July 22, 2022)
Reintroduction of similar LIHTC legislation in the House is expected by Reps. Suzan DelBene (D-WA) and Brian Higgins (D-NY). (BGov, March 2)
Additionally, House Ways and Means Tax Subcommittee Chair Mike Kelly (R-PA) and committee member Jimmy Panetta (D-CA) on March 1 reintroduced the More Homes on the Market Act, which would double the capital gains exclusion for home sellers to $500,000 for single individuals and $1 million for married couples. (TaxNotes, March 8)
Despite widespread congressional support for certain affordable housing legislation, prospects for the bills are uncertain until the national debt ceiling issue is addressed—and a tax legislative package is identified that could include such measures.
The White House on Wednesday issued the “Blueprint” that includes a set of principles to encourage voluntary private sector actions that increase affordable rental units—and drive action by the federal government, state and local partners on tenant rights enforcement. The administration will also launch an effort in the spring to get local governments and housing providers involved in a “Resident-Centered Housing Challenge.” (White House Blueprint for a Renters Bill of Rights and The Washington Post, Jan. 25)
The real estate coalition, which includes the National Multifamily Housing Council (NMHC), expressed disappointment that the White House announcement was “solely focused on renter protections, creating potentially duplicative and onerous federal regulations that interfere with state and local laws meant to govern the housing provider and resident relationship.” (Coalition statement, Jan. 25)
NMCH also issued a statement that acknowledged the White House action did not include the threat of a national rent control policy—and urged the administration to prioritize implementation of its Housing Supply Action Plan issued last May. “The best renter protection is an abundant supply of housing,” NMHC stated.
Affordable Housing Solutions
The administration’s Housing Supply Action Plan includes zoning incentives and government financing to address an estimated shortfall of 7 million units for low-income renters nationwide. It aims to create hundreds of thousands of affordable housing units in the next three years, with the goal of closing the nation’s housing supply shortfall in five years. (Roundtable Weekly, May 20, 2022 | PoliticoPro, May 16, 2022 | National Low Income Housing Coalition, April 2022)
On the legislative front, congressional committees showed support last year for theAffordable Housing Credit Improvement Act (S. 1136). The bill(detailed summary here) has not been reintroduced yet in the 118th Congress. The measure would expand the pool of tax credits allocated to states for new affordable housing, make it easier to combine the Low Income Housing Tax Credit (LIHTC) with other sources of capital like private activity bonds, and facilitate LIHTC rehab projects. (National Multi-Housing News, Jan. 16)
Real Estate Roundtable President and CEO Jeffrey DeBoer said, “Overly restrictive land-use and zoning policies, construction cost increases, and labor shortages are deepening our housing challenges, which now extend across the entire country. Government at all levels needs to be part of the solution, not part of the problem. The Affordable Housing Credit Improvement Act would be an important step forward.” (Roundtable Weekly, July 22, 2022)
The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) has formed an Affordable Housing Working Group, which is working with the Research Committee to develop proposals on expanding the nation’s housing infrastructure.
Rent increases, financial barriers to homeownership, and the growing role of institutional investors in single-family home markets were the focus of two hearings in the House this week. Committee Democrats blamed corporate landlords for exacerbating affordable housing problems as Republicans emphasized high inflation and excessive government spending as the root causes. (Axios, June 29 and GlobeSt, June 30)
Subcommittee Ranking Member Tom Emmer (R-MN) countered that an 8.6% inflation rate is the cause of current affordable housing challenges—and Congress should focus instead on lowering the cost of living for Americans. (Hearing video, June 28)
Chandan cited Freddie Mac research published this month that shows, “Nationally, the institutional investor share of the market has risen since just prior to the pandemic, but still only accounts for approximately 2.5 percent of home sales. By way of comparison, individual investors and other non-institutional investors account for 24 percent of the market, nearly ten times the institutional share.” (Chandan’s testimony and hearing video, June 29)
Chandan also noted that housing equity gaps and the shortfall of affordable housing can only be addressed with a long-term, multifaceted approach that includes reforming local building codes and zoning, improving the supply of construction materials, and investments in public transportation that open new land development opportunities.
David Howard, executive director of the National Rental Home Council, submitted a statement for the hearing record that included: “As a multitude of data consistently shows, the answer to the question posed in the title of this week’s hearing, ‘Where Have All the Houses Gone?’ is they were never built. Simply stated, the supply of housing in the United States has not kept pace with demand.”
Roundtable President and CEO Jeffrey DeBoer, above, stated, “Expanding the supply and availability of affordable housing deserves a coordinated local, state, and national policy action plan. Local zoning restrictions, permitting issues, and the oversized influence of NIMBYs—coupled with high and now significantly rising labor and material costs—are the true factors limiting housing supply, and in turn, increasing housing costs.”
Members of Congress introduced bipartisan, bicameral legislation yesterday to update and amend the Opportunity Zones (OZs) program. If enacted, the bill would extend expired OZ benefits, sunset certain high-income OZ census tracts, and apply additional information reporting requirements for opportunity funds and their investors. (Congressional news release, April 7)
The bill includes a Roundtable-requested, 2-year extension of the initial capital gains deferral period for prior gain that is rolled into an opportunity fund by an investor. (Roundtable Comment letters: Dec. 21, 2021 and May 14, 2020)
The 2-year extension, from the end of 2026 until the end of 2028, will allow OZ investors to benefit from a partial step-up in basis that reduces their tax liability on their prior gain if their opportunity fund investment is maintained for at least 5 years. The extension would help OZs continue attracting capital and investment that is boosting job growth and supporting the local tax base in these communities.
Other provisions include a detailed process for sunsetting certain high-income census tracts from the OZ program; new information reporting rules for Opportunity Funds and investors; and creation of a $1 billion State and Community Dynamism Fund to support OZ projects and businesses in underserved communities.
Census tracts subject to the sunset provision include those with a median family income that exceeds 130 percent of the national median. The sunset includes transition rules that grandfather in existing and planned investments.
The information reporting proposals were previously introduced by Senator Scott in 2019. They aim to improve program transparency and facilitate improved tracking of the OZ investment outcomes in the designated communities. The Roundtable and other real estate organizations previously encouraged Congress to adopt enhanced OZ information reporting, data collection, and transparency measures. (Roundtable Comment letter: Dec. 21, 2021)
In the short time since their enactment, Opportunity Zones have created jobs and spurred billions of dollars in new investment in economically struggling communities. The Roundtable worked closely with Members of Congress and the Treasury Department to ensure OZ implementing regulations would facilitate the program’s success, and has long-supported OZ legislation that could spur greater investment, promote capital formation and bolster job growth in economically disadvantaged communities. (Roundtable Weekly: May 15, 2020 and (Roundtable Comment letter: Dec. 21, 2021)
In the current legislative environment, prospects for the new bill are uncertain, but it will likely be the basis for any serious consideration of OZ changes going forward.
Blackstone on Jan. 14 announced a $1 billion commitment to help address affordable housing challenges often faced by low-to-moderate-income families in historically under-represented communities. Blackstone’s single-family rental company Home Partners of America will expand their private sector program called Choice Lease, which offers qualified applicants below market rents and paths to homeownership without government subsidies. (Bloomberg, Jan. 14)
An Affordable Housing Solution
Kathleen McCarthy, above, Global Co-Head of Blackstone Real Estate and Real Estate Roundtable Board Member, said, “The lack of housing supply is a national crisis. We are proud to support Home Partners’ mission of addressing housing access and affordability while also providing underserved populations with a new path to homeownership. Blackstone’s scale and long-term capital make a program like this possible.” (GlobeSt, Jan. 18)
Home Partners intends to use the Blackstone funds for purchasing approximately 4,000 homes over the next two years that will benefit eligible individuals and families facing challenges to homeownership, including lower credit scores and lack of savings. (News release, Jan. 14)
Bill Young, co-founder and CEO of Home Partners of America, said, “Our Choice Lease program is providing a critical service to many who would not otherwise be able to access the housing market. We are grateful that our partners at Blackstone have provided the support needed to implement this initiative. We have a unique opportunity to drive change that will help these groups access quality homes while providing a clear and transparent path to homeownership.”
Bloomberg reports that Home Partners buys a home on behalf of its Choice Lease client, and rents it back on a series of one-year leases. Blackstone confirmed that throughout the lease, the tenant has the option to purchase the house at any time.
Choice Lease’s rental and purchase options, as well as free financial education and counseling programs, come as a housing shortage pushes rents and purchase prices higher throughout the United States. (National Mortgage Professional, Jan. 17)
Choice Lease is intended for households who earn 80% or less of the area median income. The program also offers residents rental rates 10% lower than market rates – and caps a home’s eventual purchase price at a 3.5% annual increase. (Information on the Choice Lease Program and Chicago Agent Magazine, Jan. 17)
Home Partners has implemented Choice Lease in four metropolitan areas, including Atlanta and Phoenix, and is expanding the program to thirteen other markets. (Bloomberg, Jan. 14)
The affordable housing shortage is one of the most important and complex political problems in America, and The Roundtable continues to work with our national real estate organization partners to jointly advocate for policies that will help to enhance the supply of safe, affordable housing.