Politicians pass housing bill to fix problems they created

Yesterday, the House of Representatives passed the 21st Century ROAD to Housing Act in a 358-32 vote, one day after the Senate approved the measure 85-5.

The bill contains some good ideas. As economist Alex Tabarrok wrote in March:

The bill would streamline NEPA review for federally supported housing, primarily by expanding categorical exclusions. Federal environmental review does impose real costs and delays on housing construction, so reducing unnecessary review is a step in the right direction. The gains will probably be modest—most housing regulation occurs at the state and local level—but removing friction is good.

The bill would also deregulate manufactured housing by eliminating the permanent chassis requirement and creating a uniform national construction and safety standard. The United States once built far more factory-produced housing; in the early 1970s, by some accounts a majority of new homes were factory-built (mobile or modular). Long-run productivity growth in housing almost certainly requires greater use of factory construction. Land-use regulation remains the dominant constraint on supply, but enabling scalable manufacturing is still welcome.

Sadly, it also contains some bad ideas:

Section 901 (“Homes are for People, Not Corporations”) restricts the purchase of new single-family homes by large institutional investors. Elizabeth Warren is a sponsor of the bill but this section was driven almost entirely by President Trump. Trump passed an Executive Order, Stopping Wall Street from Competing With Main Street Home Buyers, that cuts off institutional home investors from FHA insurance, VA guarantees, USDA backing, Fannie/Freddie securitization and so forth. The bill goes further by imposing a seven-year mandatory divestiture rule, forcing institutional investors to convert rental homes to owner-occupied units after seven years.

No one objects to institutional investors owning apartment buildings. But when the same investors own single-family homes, it breaks people’s brains. Consider how strange the logic sounds if applied elsewhere:

“…a growing share of apartments, often concentrated in certain communities, have been purchased by large Wall Street investors, crowding out families seeking to buy condominiums.”

Apartments are fine, hotels are fine, but somehow a corporation owning a single family home is un-American. In fact, the US could do with more rental housing of all kinds! Why take the risk of owning when you can rent? Rental housing improves worker mobility. When foreclosures surged after 2008 and traditional buyers disappeared, institutional investors stepped in and absorbed distressed supply — helping stabilize markets. Who plays that role next time?

Institutional investors own only a tiny number of homes, so even if this were a good idea it wouldn’t be effective. But it’s not a good idea, it’s just rage bait driven by Warren/Trump anti-corporate rhetoric.

What does “Homes are for People, Not Corporations” even mean?–this is a slogan for the Idiocracy era. “Food is for People, Not Corporations,” so we should ban Perdue Farms and McDonald’s?

The current fuss about institutional investors owning single family homes is of the same type as that surrounding the construction data centers. It starts with a problem — rising electricity or house prices — misdiagnoses the problem — data centers or institutional investors — and lets the real culprits off the hook. Those culprits are fine with all this and go out of their way to foster these misdiagnoses and faulty prescriptions.

Who are these culprits? Governments, mostly. A new study from the National Association of Home Builders (NAHB) finds that regulations imposed by federal, state, and local governments account for 26.4% of the final price of a new single-family home. Applied to the average sales price of a new home in January, the regulatory burden totals approximately $131,734 per house.

Take a look back at the “good” provisions in the 21st Century ROAD to Housing Act; they relate to government getting out of the way or stopping doing something. These government actions are a much bigger cause of housing unaffordability than institutional investors, most of whom are individuals with real estate investment side hustle, but they make a handy scapegoat, just as data centers do when government energy policy pushes electricity prices up.

Government really is the meme: