Congress continues to debate how to cut red tape and has momentum to pass laws to ease the housing shortage.
After all, government regulations have been a big cost for years and the National Association of Home Builders said that regulation accounts for a quarter of the cost to build a new single-family home and nearly 40% of the cost of a typical apartment development.
Realtor.com said that the House Committee on Financial Services examined a wide range of policies that could contribute to the increasing cost of building and securing a home in a recent hearing. It recently passed a bipartisan effort at housing reform, the Housing for the 21st Century Act, which carried the House by a 390-9 vote.
Republicans and Democrats on the committee presented parallel versions of what those policies were and had little common ground. Realtor.com said, however, that their points of agreement point to the larger wave of rule changes being debated by governments around the country.
Investment Requires Ease
According to Realtor.com, builders are being forced into markets with less regulation, said Kevin O’Leary, the venture capitalist and TV personality. For example, O’Leary contrasted the easier zoning laws in Houston with the strict height constraints of Washington, D.C.
O’Leary noted that states and regions compete for investment, and investment requires ease.
“If you’re given $2 billion to deploy, you have to find a state where you can get that money to work. You go for the path of least resistance,” O’Leary said. “The harder it gets, the less I want to spend time fighting that fight.”
Congress has no direct authority over state and local zoning issues.
But “there’s no question it restricts the availability of homes,” Brian Brooks, CEO of New York–based Meridian Capital Group and former Acting Comptroller of the Currency, told the committee.
But, Congress can change laws around regulatory approvals of other kinds, which is something it should do, said Florida Rep. Byron Donalds, a Republican.
“If we’re going to be smart about this, we examine all of the regulatory burdens—federal, state, and local—around constructing new housing,” Donalds said. “It doesn’t mean you have a wild west of no permitting, but there does have to be certainty in the environment. Because time is money.”
Realtor.com noted that several states have put forward housing packages this year aimed at cutting regulations and state lawmakers from both sides of the aisle have pitched reforms in New Jersey, Pennsylvania, Utah, Florida, and Indiana.
Republicans have been critical of bank regulations. GOP lawmakers focused their energies on altering or rescinding the Dodd-Frank Act, which was enacted after the subprime mortgage crisis to regulate bank speculation in real estate, Realtor.com noted.
Dodd-Frank’s rules have hamstrung small community financial institutions from investing in real estate, Brooks said. He called it an “overcorrection” that chased small lenders out of the market.
Acquiring Homes With Less Equity
Stephen Moore, a conservative economist and adviser on the 2017 Tax Cuts and Jobs Act, warned that policies allowing homebuyers to acquire homes with less equity—such as lower down payments or longer-term mortgages—might backfire, Realtor.com said.
People who had less equity in their homes were more likely to default during the Great Recession, Moore said. Acquiring a house and then losing it still leaves them worse off, he said.
Democratic lawmakers highlighted President Donald Trump’s aggressive tariff policy, which has driven up the costs of some building materials, Realtor.com noted. The lawmakers also sought to defend the Consumer Financial Protection Bureau, a target of Trump. More power to oversight agencies, unions, and higher wages would offset the rise in housing costs, they said.
The lawmakers also questioned the proposed ban on institutional investors in the market. Because those firms represent a small share of the market, they primarily serve as a “backstop” that enables homebuilders to build speculatively, Realtor.com reported.
In the hearing, Illinois Rep. Sean Casten mentioned what he called the “third rail” of the housing debate.
“Housing is both an expense, and we get political credit for bringing expenses down. And it’s also an asset, and we get political credit for making assets more valuable,” the Chicagoland Democrat noted. “The math that we all know but we don’t really like to talk about is that 66% of Americans own their homes.
“For most of those Americans, that’s the majority of their wealth. And so, it would be politically suicidal for any of us to go out and aggressively lower the cost or prices,” Casten continued. “Supply, supply, supply, that’s the lever that’s politically possible for us.”
“This is a conundrum, no question about it,” Moore noted.
