89 to 10: Why Both Sides Of The Aisle Just Agreed On The Housing Crisis

Friend, please allow me to talk about anything but interest rates today. I think we could both use a moment of relief from the news on the war. So, let’s talk about something productive that happened this week – our lawmakers actually put their heads together and accomplished progress on the ever complex but increasingly worthy of attention housing crisis. 

This week, Senators passed (with an overwhelming majority) a bill two Democrats – Elizabeth Warren and Tim Scott introduced. They voted 89-10 on a bill to address our national housing shortage and affordability crisis. I’ll get to whether or not this bill would actually work but first, a moment for something completely unheard of in today’s political climate. Both parties agree on something. When something like that happens, it makes you wonder: 

What do they know about what’s coming that we don’t? 

The 21^st Century Road to Housing Act is the largest federal housing policy push in decades. It is definitely overdue because our housing shortage is estimated to be in the millions. Home prices have increased 60% since 2019 due to a variety of factors, the main one being that builders have been underbuilding for years. Mortgage rates certainly make affordability worse, but the real driver of home prices is supply and demand.

The truth is we didn’t just have a pandemic housing boom. We had a decade of underbuilding hit the fan at the same time household formations exploded. 

What is in the bill? 

If passed in its current form – this still has to clear the house next and then be signed by the president – the bill restricts large institutional investors form purchasing any more single-family homes. So, Congress is responding to the public perception that Wall Street is stealing homes from Main Street. It is important to note this is a perception because the data shows institutional investors only own 3-5% of the current housing stock. It is also important to note that their share has been quickly increasing in recent years, and we know many have dedicated increasing portions of their funds to acquiring more real estate. 

The bill goes even further to fight this perception. 

It includes provisions to require these institutions to sell a certain number of their rental homes within 7 years. This would certainly push more homes back to the market, with the goal being that owner occupiers would purchase them. It would be hard to regulate mom and pop investors and say they cannot purchase them as rentals though. I’m going to be very real with you – I doubt the final bill includes any of this about institutional investors but hey, we are living in wild times. 

Development 

The bill also introduces plans to streamline environmental reviews and construction regulations, meaning the federal government cooperating with developers to make it easier and faster to build homes. It would also update financing programs for multifamily development and allow more private investment here. More liquidity with few barriers would certainly lead to more homes being built. 

What does this mean for us? 

This policy focus and the way it was voted on signals where Washington believes the market is going. I think it means one or maybe all of three things. 

1.  Housing supply is now a bipartisan emergency. I wonder if that has anything to do with the fact that it is an election year. 

2. More supply is the only long-term solution. Not interest rates or incentives like tax paper credit. We need MORE HOMES. 

3. It’s still not a magic solution. This will all take time because homes take years to build. 

   
   

A savvy homeowner reading this feels a little bittersweet because more supply means your home value would go down. Don’t fret my pets, the supply relief will take time and like I have said – there is so much pent-up demand. If you are shopping for a home, you’re wondering, “would I have more choices soon?”  Again, waiting is not a strategy because affordability isn’t improving tomorrow.  

As a realtor or lender reading this, I would follow this bill through the House and see if it gets the same kind of support. I would pay attention to how local politicians respond to the federal pressure. I would get a pulse on builder sentiment at a local and national level and keep an eye on housing starts and new construction permits.