The 21st Century ROAD to Housing Act is set to become law tonight, in the first major effort to impact Federal housing policy in years. The President has refused to sign the bill, passed by a veto-proof bipartisan supermajority, in an effort to leverage the bill to secure other priorities, but reporting indicates that he will let the bill become law without his signature. Even if vetoed at the stroke of midnight, the bill presumably has the votes to take effect.
The ROAD to Housing Act touches on almost every element of the market: lending, permitting, and fiscal support. This piece focuses on Title II of the Act, entitled Building More in America, which creates and modifies several grant programs that are designed to push certain interventions in the housing market and advance housing construction across the country.
Opportunity Zones
Section 201 permits HUD to give additional weight to applications with activities or projects that occur in Opportunity Zones. With states currently reviewing Opportunity Zone recommendations and Treasury required to make OZ 2.0 designations later this year, this is a timely change. Communities that expect major housing investments should align their Opportunity Zones designation strategy with these geographies to maximize their ability to access the benefits of these new initiatives.
Whole-Homes Repair Act
Section 202 creates a new grant program designed to assist homeowners and small landlords (less than ten units) with home repairs and lead abatement. Many communities already have variations on these types of programs, funded either through allocations of existing Federal funds or through their own resources. This section authorizes HUD to grant funds to communities and non-profits to execute on these goals, and permits them to self-certify environmental review, which should expedite the program. The program requires that properties maintain affordability.
This is a useful pilot program that addresses several affordability, health and safety needs. Many older properties in urban communities require lead abatement and critical repairs to maintain their value and livability. These properties are also apt to be affordable even if transacted at market rates, if they are reasonably well-maintained. This program is worth watching: both to see if it is effective and to see if it is adequately funded or withers as an unfunded pilot.
Community Investment & Prosperity Act
Section 203 raises the cap on the amount of investments that banks are authorized to make in public welfare investments (primarily LIHTC and NMTC) from 15% to 20% of their own capital. Practically, there are a few banks who are very active participants in this investment space who will benefit the most from the lifting of the cap. However, because those banks are already active participants in these markets and have a deep understanding of tax credit financing, it is probably more effective to give them additional investment capacity than to try to find other levers to influence banks that have been reluctant to deploy this capital. Practically, this should make more capital available in this market and may slightly improve pricing for developers.
Addition of Affordable Housing as an Eligible Activity
Section 204 allows communities to use CDBG funds to support new construction of affordable housing. CDBG funds are flexible federal funding provided to urban communities that face two constraints: communities already allocate them for a variety of uses and they have been cut several times recently. Assuming these trends continue, this may have less impact than hoped. However, addressing this regulatory gap gives additional flexibility to grant recipients.
Better Use of Intergovernmental and Local Development (BUILD) Housing Act
Section 205 grants HUD authority to delegate the NEPA review process to local recipients in an effort to streamline that process. If this regulatory relief is combined with Federal investments in housing projects, then this can have a substantial impact on permitting. However, if the program is not funded and/or local communities do not make efforts to streamline their review process, then the impact will be minimal.
Unlocking Housing Supply Through Streamlined and Modernized Reviews Act
Section 206 provides NEPA relief to several housing-related activities by defining them as categorically excluded from NEPA review. The activities include predevelopment activities, scattered-site housing and housing rehabilitation, and, most interestingly, office to residential conversion. This section can expedite federally funded redevelopment projects, but, as noted above, communities that do not streamline their own process will be left behind.
Grants for Planning and Implementation Associated with Affordable Housing
Section 207 creates new grant programs to support communities undertaking efforts in the field of affordable housing and real estate development. These grants will support significant neighborhood planning and development efforts for impacted communities. It is likely that HUD will look to use some of these new grant programs to support plans developed under these Planning grants, or, alternatively, to tie some of the new grant programs to the implementation of the community plans developed under this new program.
Innovation Fund
Section 208 creates an innovation fund that will grant communities funding to support initiatives that expand “attainable housing,” which is defined as housing that “serves households earning not more than 120 percent of the area median income, if the majority of the housing units are affordable to households earning not more than 60 percent of the area median income.” This is a new type of targeting, focusing on what is alternatively referred to as “missing middle” or “workforce” housing. The program requires communities to identify the housing shortfall, indicate their objectives to addressing the comprehensive strategy, and undertake certain initiatives that would deregulate certain elements of their building, housing and zoning codes, as well as the creation of additional financial tools.
The development of “attainable housing” as a goal for Federal housing policy is a useful addition, as this segment of the market has been neglected in favor of lower-rent “affordable housing” and market-driven market-rate housing. The Innovation Fund program also recognizes that the answer to the attainable housing shortfall will require identification and creation of new tools.
Accelerating Home Building Act
Section 209 creates another grant program to further housing development, in this case by supporting funding to select and approve pre-reviewed housing designs to support housing construction. While this approval could open opportunities to develop affordable housing, it is limited only to the design selection itself, and leaves the funding necessary to implement a pre-selected housing program to others.
Revitalizing Empty Structures Into Desirable Environments (RESIDE) Act
Section 210 creates a five-year grant program to award competitive grants to convert vacant and abandoned commercial and industrial buildings to residential use. This is also targeted to the new attainable housing definition, rather than the affordable housing market, which gives greater flexibility. Depending on scope and scale, this could be important to free up some buildings that are currently underdeveloped and free capital off the sidelines.
Housing Affordability Act
Section 211 redefines statutory maximums for FHA mortgages and is designed to allow for additional lending and requirements.
Rental Assistance Demonstration Program
Section 212 lifts the program cap by 100,000 units and offers additional protections for program tenants.
Build NOW Act
Section 213 directly ties CDBG funding to housing production, creating bonus funds for communities that meet and exceed housing production goals while reducing grants for communities that fall short. As noted above, many communities are reliant on their CDBG funding for a wide variety of social services and development strategies. This program could cause communities to shift their priorities to try to secure extra allocation, but, as is the danger with one-off money, it would be difficult to create a long-term program. On the other hand, combined with the programmatic expansion in Section 204, one-off “bonus” money could be a good use for project-specific grants or expanded access to programs like home repair that are universally underfunded.
Takeaways
Communities Should Examine Their Housing Regulations & Policies
The programs authorized by the BUILD Act contain requirements that communities be acting to relieve impediments to construction of housing, whether through financial, regulatory, or construction barriers. Communities who want to be the first to access some of these new programs, whether planning or implementation dollars, should be working now on understanding their housing market, finding barriers that can be eased or removed and developing a housing strategy focused on overcoming these barriers.
New Vehicles for Housing Financing Are Available. Will They Be Funded?
The program provides authority for a number of grant programs, but notably does not provide funding. Funding for these programs will need to be authorized through the annual appropriations process. The politics on HUD funding are complicated, and these funds are complicated even further by the President’s mixed messages around the bill. Future budgets may look to reallocate funding from some of HUD’s existing programs to these new programs, or (more unlikely) HUD may get a boost in funding to support these new programs. The ROAD to Housing Act is, thus, in some ways, a first step, rather than a culmination of a new approach to Federal housing policy.
Opportunity Zone Designations Just Got More Important
One shift that is clear. Opportunity Zones are critical to the future of community, housing and economic development, at least under this paradigm. In addition to the general command to account for Opportunity Zones while considering requests for funding assistance, several of the new grant programs explicitly give preference to projects that are in Opportunity Zones. With Governors now soliciting information and making choices on Opportunity Zone designations, these new programs may change the calculus, drawing more attention to tracts with opportunities to invest in housing.
Experimentation Won the Day
This bill reflects the complexity of the housing market and the need for compromise when attempting to pass bipartisan bills. Housing markets are complex, with a variety of housing types, price points, and location impacts. With so many different possible impacts and solutions, the strategy of experimenting with a variety of pilots to see what policy will have the most impactful effects on of the various elements of the housing markets makes sense, if there is a willingness to undertake the rigorous policy and cost-benefit analysis necessary to sort through the pilots. Balancing impacts are important as well: small-scale home repair programs may be crucial to maintaining neighborhood and single-family housing stock while larger grant programs may be needed to add development at scale to increase housing options.
To discuss further, contact KJK Director of Economic Development and Incentives, David Ebersole (DME@kjk.com).