Legislative Update RE Journal 12-21
Legislative Log Jams
As the New Year settles in, if history provides a lesson, Congress will slowly stagnate into a complete morass of a legislative log jam. While Democrats are waging an internecine conflict over their future, Republicans are preparing for a sizable win in the House, looking to pick up dozens of seats and the Majority. The Senate, as is noted almost hourly in the news cycles, is deadlocked, and the GOP is looking for wins for a majority there as well in the 2022 mid-terms. Thus, neither side will want to move forward on legislation that could be perceived as giving the other side a win – or from the moderate Democrat perspective, opening up potential attacks. Hence, it is unlikely that much will be accomplished in the run up to the ‘22 mid-term elections. With Presidential approval ratings falling, the polarization has been exacerbated and may lead to an increased rate of polarization and stagnation.
In the meantime, there will be no end of handwringing over the concerns of inflation, new viral waves, logistical problems, and international challenges like China, Russia and Iran with their various militant and cyberwarfare efforts. Fear will be a top selling point in ‘22.
On a more pragmatic note, Investors will be dealing with fresh and eager regulators at CFPB, HUD, OSHA, the IRS and the National Labor Relations Board. While several are partnering together on cross-department projects, one that could have a direct effect on renovators and property owners alike, would be the Climate Change efforts being considered by HUD with support from the Department of Energy. Benchmarking of utilities has long been a goal, both for existing properties so that renters would know the “full price” of renting, and for renovators so that new standards could be put in place.
The complications of the wide variety of building types, various upgrades over the years and the spectrum of weather impact across the country have typically complicated this process into becoming a non-starter. However, there has been a real push for the most basic level of benchmarking to increase the data “for research purposes” and to provide clarity to renters and homebuyers alike. The reality is that research will be used to generate regulations and eventually legislation mandating lower carbon footprints and higher efficiency products.
While those are not necessarily a problem, the cost in Return-on-Investment (ROI) has typically driven change. The conflict comes in when there is a separation between the ROI and the payor. For Example: a housing provider installs an 80% gas furnace because it costs substantially less than a 95% unit, but the renter must pay the higher gas bill. There have been grants in place for several years now seeking to help cover the capital cost differential but the programs, like most government programs, are slow, awkward and tend to levels of bureaucratic red-tape that are anathema to most entrepreneurs. National REIA will be providing feedback on the programs and guidance on how to improve new programs, i.e. simple but effective tax incentives rather than bogged-down grant applications. More to come on this…and we will need your experience on various solutions! Please keep an eye out for request for information.
Speaking of information…we have a survey on the pandemic effects on the industry and your feedback is critical. Please check out the survey located at NationalREIA.org under the Advocacy tab. Survey information is anonymous but critical in providing feedback to local, state and federal officials. This survey is focused on providing updates on the rental assistance funds and their effectiveness or lack thereof.
Seller Finance Update: After a long discussion about how very little will be accomplished in the next year, one bright spot is the bipartisan – yes that still happens – Affordable Homeownership Access Act (H.R. 5013). In an effort to provide housing options that were limited by unintended consequences from the Dodd-Frank bill, H.R. 5013 increases the number of single-family homes an individual may seller finance in a 12 month period. The buyer must still qualify under CFPB rules, but the housing provider would not be nearly as limited in their number of sales. This is especially helpful for investors who have built a portfolio over the years and are looking to divest by giving their residents a chance to become home-owners. Presently residents, especially the unbanked and those living in housing costing less than $70-$100K have extreme difficulty in obtaining mortgages even with extensive exemplar rental histories. A special thanks goes out Texas Representative Vincente Gonzalez (D-15) for his insights and leadership on this issue. Please take a moment to encourage your congressman to become a cosponsor of H.R. 5013. Please visit NationalREIA.org and click on Advocacy.
Background checks: There has been an ongoing legislative and regulatory battle over the amount of information, or if a background should even be considered for applicants of rental housing. To those who understand risk management, background checks are essential. However, there are those who are advocating for the removal of background checks, be it criminal or credit, and are taking step-by-step measures to limit their usage. Please be on the alert – as a housing provider it is essential for your business, your neighbors and your community that robust background check information is preserved and made accessible for commercial usage. Additionally, if you are not utilizing a commercial provider and pulling information ad hoc, there is significant risk of fair housing violations. With increased scrutiny on this facet of the business, please make sure that your business is up to date on all local, state and federal laws and regulations, one of the best ways to do this is to hire out this service! The cost otherwise could be devastating, financially, and potentially, criminally.
State Legislatures: As the new year begins, state legislatures will again take up bills that can impact property owners of all stripes. At the top of the priority list are the double dangers of rent control and eviction moratoria. The never-ending threat of the “we-know-better-than-you” crowd as well as a growing class of entitlement activists is threatening the very existence of rental property to the eventual detriment of the people supposedly benefitting from the legislation. Experienced housing providers will need to participate with local REIAs and their state coalitions to succeed in these efforts. Each member matters…each voice is needed. Please participate now!
2021 Recap: National REIA tracks bills across the country as well as working on bills in the halls of Congress. There are seven primary categories of types of bills as well as various rent strike and anti-eviction and anti-background check efforts. Here is a summary of the various categories:
Abandoned Property: not nearly the hot-button issue it has been in the past. This category is truly a reflection of the macro-economy. With very few homes sitting unused or vacant due to high demand, less than 30 bills were even drafted on this issue for ’21, and none have passed as of yet.
Property Maintenance Code: An issue that dominates at the local level, only 17 bills were even filed in 2021. Of those, most were focused on updates for the International Building Code – standard state updates for consistent compliance. Ironically, most states tweak their version, undercutting the “international” aspect.
Landlord Issues / Property Management: With Covid-19 related bans on evictions dominating the headlines, it is no surprise that nations 7,383 state legislators filed almost 5,000 bills relating to rent! While Northeast Blue States like New York, and New Jersey had 575 and 474 bills respectively. While Minnesotans filed over 250 bills, many states averaged 50-100 bills. Passage on the other hand was relatively low – as these bills were more about public relations statements than actual policy.
Rent control and rent control pre-emptions have been introduced in many states depending on the liberal – conservative bent of the state. The issue of rent control, evidentially proven to be bad for low income renters, property owners and housing costs, has not stopped the Housing-as-a-Right crowd from demanding Rent Strikes and Free Rent – without reprisals during the Covid-19 Pandemic, no matter how long it runs.
For example, New Jersey has banned evictions for non-payment due to Covid-19 until 2-months after the pandemic emergency is lifted! What politician is going to announce the end of the pandemic with a never-ending string of new variants on the horizon and an ever-increasing unpaid rent tab for at-risk renters? The impact on housing providers has yet to be determined.
Short term rentals have been percolating in many states with local communities passing laws that are less than welcoming. More states are entering the fray, in part to set consistent rules, but also as the big boys in the market, the hotel industry, has been taking it on the chin, exacerbated by Covid-19, and post-Covid-19 concerns.
Source of Income (SOI) is an issue that is not well understood. The definition is misleading in that if a resident actually had income, they would likely qualify. Most property owners have a standard formula of 2.5-4X income to qualify a resident. SOI legislation scraps that formula and requires housing providers to accept a different type of payment with a whole series of rules, regulations, timing delays and inspections different from the local and state standards. Simply put, SOI is not about income, it’s about federalizing housing.
Real Estate Inspections: Over 100 bills have been introduced so far dealing with the issues such as expansion of inspection items, individuals & businesses to be included, the actual process, discrimination and, of course, licensing for all.
House Rehabbing & Housing Preservation: These two categories are typically driven by increasing housing costs or a scam that catalyzes new legislation to fix a problem that may or may not be covered by other laws. In areas like California where the cost of housing is driving new ideas like secondary residential structures, rehabbing and preservation are going hand in hand for now. These will likely diverge again as gentrification issues re-emerge over the next couple years. Presently, the capital influx into underperforming markets has municipalities excited about growth, but as there are fewer homes for low-income residents to rent, the preservation activists will increase their volume and new bills will be forthcoming.
Business Licensing: Governmental licensing is based on two key concerns. The first is often expressed by those presently in the business to be licensed, and that is their concern for “quality.” Which is another way of saying the consumer isn’t smart enough to pay my rates for the service I’m providing, therefore we need to put some roadblocks in the way of others coming into this market; furthermore, the government created lack of supply will increase the price and prop up my business. Second, the government in all its wisdom, elected, bureaucratic or both know more about your business than you do and therefore you need to come to them for instruction, guidance and regulation.
With over 3,889 bills filed on business licensing, and very, very few to eliminate the licensing or reduce requirements, it speaks volumes about the willingness of the country’s small business willing to utilize the power of government to restrict access to their chosen business, or the depth and breadth of self-proclaimed expertise and wisdom residing in the halls of government. #HangOnToYourWallet
An additional area of concern are Assistance / Companion Animals. Many states are actually pushing back against the overly broad definitions provided by HUD, that have now spanned 3 administrations. The clarifications during the last administration were an unmitigated failure and have accelerated the growth of “novelty” and outright dishonest websites providing identification and paperwork justifying why Fido, Smokey, or any number of other animals are legitimate. Beyond the companion animal website scams there are also websites that will provide a variety of other novelty items a resident might need, such as paystubs and proof of employment. Would you like to have documentation showing your graduation from the college of your choice, months of great paystubs? And the ADA/HUD latitude required to keep your pets as therapy, companion or assistance animals? They can be yours for a low, low introductory cost. One caution, if you search these sights, they will inundate you with advertisements, and they are not necessarily professional in their handling of your personal information. After all, they are helping you run a scam, and…there is no honor among thieves in this situation.