The 21st Century ROAD to Housing Act, a bipartisan piece of legislation that became law at midnight on Friday, is both the largest housing effort in a generation and unlikely to do much to blunt the high cost of rent and ownership in America anytime soon.
The legislation is no Great Society achievement, like the 1965 act that created the Department of Housing and Urban Development and unleashed billions of dollars to build affordable housing and provide rent subsidies. Rather, it contains a hodgepodge of measures that, in various ways, aim to speed up building in hopes of backfilling a housing shortage that economists estimate at one million to six million units. Housing experts across the political spectrum had been calling on Congress to pass a measure like this for a decade.
Why, then, will it not make much of a difference? The main reason — aside from money, which the legislation contains little of — is that the federal government does not control the biggest levers in the housing market. Cities and states write most of the regulations that determine what gets built where, while interest rates and other macroeconomic factors hold most of the sway over mortgage costs. Besides, housing takes years to plan and build, and voters are hurting now.
The bill became law through an unusual route: It was passed by large majorities of both houses of Congress but President Trump refused to sign it to protest Senate Republicans for failing to pass a separate voting restriction bill. He didn’t veto it, however, so the bill became law automatically 10 days after it was sent to his desk.
The legislation is a triumph “simply because it exists,” said Laura Foote, executive director of YIMBY Action, a housing advocacy group based in San Francisco.
In California, Ms. Foote and other activists have spent a decade pushing for measures to make housing more plentiful and affordable. The state has passed dozens of measures, tackling zoning and environmental laws that its Democratic leaders used to consider untouchable. California has more in the pipeline this year, and next year will undoubtedly see several more still.
Montana, Arizona and other states have also done versions, part of a nationwide shift that is gradually making single-family-home neighborhoods denser, taller and more multigenerational. But these changes have been slow and incremental, an illustration of just how hard housing — which is baked deeply into American culture and is the bedrock of the financial system — is to change.
The federal legislation builds on these state and local efforts. But as affordability struggles that have long been a fact of life in high-cost coastal states spread across the nation, its greatest significance is its bipartisan message that America needs more housing.
Here are some of its notable elements.
It shows that Congress can legislate, if modestly.
Much of the measure consists of small changes that housing experts have been talking about for decades.
Take, for instance, a tweak in the Housing Choice voucher program (better known as Section 8), which provides subsidies to low-income people renting from private landlords. The program requires regular inspections, and participating landlords may have to hold units vacant for months while they wait for one.
In effect, this reduces the supply of affordable housing by discouraging building owners from accepting voucher holders as tenants. The legislation waives inspections of units that have been inspected for other federal programs (such as the low-income housing tax credit) in the previous 12 months.
Housing experts at HUD and elsewhere had been pushing for this and other relatively uncontroversial policies — such as guidance for how state and local governments can spend disaster recovery money — under several administrations. Congress just never got around to them because it was tackling other priorities or mired in partisan bickering.
“A lot of what you’re seeing in the bill is catch-up on 30 years of policy that has been stalled because Congress hasn’t had the bandwidth to do any housing legislation,” said Ben Metcalf, managing director of the Terner Center for Housing Innovation at the University of California, Berkeley. “It is the kind of thoughtful legislating that Congress used to do all the time but now never does.”
It acknowledges that local governments are often the ultimate deciders of where, how — and if — housing is built.
Developers spend a lot of time griping about regulation, but bodies like city councils and planning commissions, not the federal government, get most of their ire. Not only will that remain true long after the housing bill became law — it is guaranteed to blunt virtually any federal housing effort for the foreseeable future.
So instead of sweeping mandates, the legislation tries to nudge cities to build more through carrots and sticks in HUD’s Community Development Block Grant program as well as a separate innovation fund. The carrot is allowing cities greater leeway to use HUD funds for housing construction (which was previously not allowed). At the same time, it changes the formula for allocating block grants to reward high-cost cities that initiate changes that add to the housing supply, like allowing denser housing and faster permitting.
This is not likely to force significant changes in how cities operate: The zoning, environmental and historic preservation laws that govern local land use are the main way local officials control the shape of their communities. And in most cities, property taxes and development fees account for a majority of local tax revenue.
But it’s a nudge. Over the past decade, states run both by Democrats and by Republicans have passed measures that try to curb local governments’ power to block new housing. By pushing in the same direction, the federal act essentially gives state officials permission to continue to ease up on restrictive local rules, and creates a framework for more federal action in the future.
It cements single-family rental housing as a cornerstone of the housing market.
In the nearly two decades since the Great Recession, one of the biggest shifts in the housing market has been the gradual replacement of starter homes with single-family homes for rent. The shift began as large investors and pension funds began buying up cheap properties after the financial collapse in 2008, when many homes went into foreclosure. This was so lucrative that developers began building entire subdivisions of single-family homes that are rented out.
These “build to rent” communities have become one of the fastest-growing segments of the housing market. In 2014, builders completed fewer than 1,000 homes in built-to-rent communities, according to Zonda, a housing data and consulting firm. Last year, they completed about 65,000, or about 4 percent of the new housing stock.
This shift has been excoriated by politicians on both the left and right for sawing off the first step of the home equity ladder, and an earlier version of the legislation took aim at tamping down this industry. The final version still has restrictions on large investors that buy existing homes but lifts them for new housing that is built to rent.
“This bill essentially makes the building of dedicated rental communities the primary area of growth for the single-family rental industry,” said Richard Ross, the chief executive of Quinn Residences, which owns about 5,300 single-family houses in rental communities across the Southeast.
It could unleash a wave of innovation in construction techniques — but that will take time.
Since the 1970s, HUD has required that manufactured housing be built with a permanently attached chassis so homes can be easily transported. Yet only a small share of these are actually mobile homes; after sliding off a flatbed, most manufactured homes are placed on a permanent foundation.
The chassis requirement added thousands of dollars to the cost of each unit. It also capped the number of homes that could be built in a factory because many cities use zoning codes to limit manufactured homes to mobile home parks.
The new law removes the chassis requirement, immediately lowering the cost of producing those homes. More important, it could allow builders to experiment with the look of manufactured homes, creating cheaper factory-built houses with broader appeal.
The law directs HUD to study building codes and financing changes in order to expand the potential for modular building (in which larger buildings are essentially stacked together like Lego bricks) as well.
Innovation is something the housing market has long lacked. Drive through a suburban construction site and, aside from nail guns and iPads, many of the tools of the trade remain largely unchanged — one reason that productivity in home building, which boomed after World War II, has lagged in recent decades.
Manufactured housing is a rare exception to this, but it has been stymied by rules that limit how it can be built and what neighborhoods it can be placed in. The legislation aims to change that and, over time, could lead to a revolution in the entry-level homes that America needs most.
