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CREFC and Real Estate Groups Urge Congress to Address Housing Shortage

May 25, 2023

CREFC joined a coalition of 19 housing and real estate groups urging U.S. lawmakers to work with the Biden Administration, housing providers, lenders, and other stakeholders to pursue bipartisan solutions to address the nation’s shortage of affordable housing.

Why it matters: There are not enough homes to meet long-term demand for housing tailored to low- and middle-income households. The shortage is immense, widespread and enduring.

CREFC has been working with its members and industry partners to delivery policy and market solutions to address the housing crisis. The total share of cost-burdened households (those paying more than 30% of their income on housing), increased from 28%  in 1985 to 37% in 2021. The shortage of affordable housing has become more acute amid a period of high inflation.

The letter to Congress and President Biden highlights that a combination of factors has propelled development costs higher, including increased borrowing costs tied to the Fed’s rate tightening moves and costly regulations.

CREFC and the coalition’s strategy supports the following principles:

• Strong private and public partnerships;
• Increased housing supply at all price points and short-term solutions to renter populations in need of immediate support;
• Increased subsidies and emergency housing support for those of modest means; and
• Incentive-based programs, streamlined regulations, and innovative solutions that increase affordable housing supply.

Proposals to Alleviate Shortage of Affordable Housing. The coalition lauded the administration’s Housing Supply Action Plan and urged Congress to work with the White House to enact key policies included in the plan:

• Low-Income Housing Tax Credit (LIHTC): The President’s FY24 Federal Budget includes a proposal to expand and enhance the LIHTC program, which has developed or preserved 3.74 million apartments between 1986 and 2021.
• Neighborhood Homes Credit: The White House FY24 Budget includes a new allocated tax credit to support new construction or rehabilitation of homes for sale and existing homes by current owners who will remain in their neighborhoods. The credit could create 500,000 more affordable homes for moderate- and middle-income families.
• Reducing Regulatory Burdens: The coalition supports proposals to grant funding that incentivizes state and local governments to expand housing supply by reducing barriers to development.
• Housing Preservation: The White House budget includes an expansion of the Housing Choice Voucher programs and the HOME Investment Partnerships Program, which supports building, buying, and rehabilitating affordable housing.

Opposing Tax Increases: While the coalition praised aspects of the President’s budget, new taxes would reduce real estate investment, leading the coalition to urge Congress to reject proposals that:

• Increase the top marginal income and capital gains tax rates,
• Tax carried interest as ordinary income,
• Expand the net investment income tax to encompass active business income,
• Require 100% recapture of depreciation deductions as ordinary income for real estate, and
• Limit the deferral of a taxable gains from 1031 like-kind exchanges.

Burden on Housing Providers. The coalition remains concerned the White House’s “Blueprint for a Renters Bill of Rights” could create duplicative and confusing regulations that interfere with state and local laws meant to govern housing provider and resident relationships. The added complexity of this blueprint could discourage private market investment in new housing construction.

Legislation. In line with the above principles, CREFC and the coalition support the following bills in Congress to address the shortage of affordable housing:

• Yes In My Back Yard Act
• Promote Affordable Housing Near Transit Act
• Build More Housing Near Transit Act
• The Choice in Affordable Housing Act
• Housing Supply and Affordability Act

What’s next: CREFC continues to work with policymakers and industry partners on addressing housing affordability. CREFC members who wish to weigh in on this issue and/or work alongside us on this issue, should contact:

• Sairah Burki (sburki@crefc.org) with questions about regulation related to housing.

David McCarthy (dmccarthy@crefc.org) with questions about the legislative proposals.

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Regulators on Capitol Hill

May 22, 2023

On May 16 and May 18, top banking regulators testified in front of the House Financial Services Committee and Senate Banking Committee, respectively.

Who testified:

• Michael Barr, Federal Reserve Vice-Chair of Supervision
• Michael Hsu, Office of the Comptroller of the Currency (OCC) Acting Comptroller
• Martin Gruenberg, Federal Deposit Insurance Corporation (FDIC) Chair; and
• Todd Harper, National Credit Union Administration (NCUA) Chair
• Adrienne Harris, New York DFS Superintendent, and Clothilde Hewlett, California DFPI Commissioner (only the Senate Banking hearing)

Why it matters: These hearings, which took place the same week as hearings with the executives of recently failed banks, conveyed lawmakers’ frustration with the current bank regulatory framework and supervisory approach.

What they’re saying: Topics covered included, among others, bank capital requirements, deposit insurance, commercial real estate, and the overall bank landscape.

Capital requirements: Fed Vice Chair Barr expects to present his “holistic” review of capital requirements this summer, with the most substantial increases targeted at “very large firms with very large trading operations.” He also shared that the Fed is:

“Carefully considering [making] a change for firms over $100 billion that would pass that unrealized loss or gain through to the capital treatment to accurately reflect their financial position.”

Deposit insurance: Lawmakers from across the aisle asked FDIC Chair Gruenberg about potential reforms to the deposit insurance system, focusing on targeted coverage for business payment accounts. Gruenberg stated that coverage for payroll accounts would be particularly beneficial for small institutions. He did note, however, that expanding deposit insurance on business transaction accounts would require legislation.

Commercial Real Estate: In response to questions regarding pressure on the CRE sector, Fed Vice-Chair Barr outlined the risks identified in recent regulatory reports, including low office vacancy rates and refinancing risk. However, he also said that the markets are better placed that in the past given higher borrower equity.

Banking landscape: Republican and Democratic lawmakers expressed concern over what they called a “barbell” or “two-tiered” system, with TBTF banks at one end and, as Rep. Torres said, “too small to succeed” banks at the other. He highlighted that TBTF banks have an implicit guarantee of unlimited deposit insurance and, therefore, were recipients of large deposit inflows during the recent banking crisis. Rep. Andy Barr argued that given this “barbell” environment, regulators should not be blocking mergers and acquisitions.

Lawmakers had several questions related to JPMorgan’s acquisition of First Republic. Sen. Warren said that increased concentration is the single biggest threat to the banking system, and she was “troubled” by the OCC’s decision to create more concentration. Senate Banking Chair Sherrod Brown said that merger policies must be improved so that failed bank acquisitions by megabanks are only a “last resort.”

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Election Outlook 2024: Senate Up for Grabs

May 22, 2023

Every two years one-third of the Senate is up for election. The 2024 election is 18 months away, and with 34 Seats in the Senate up for election. With so many seats in play politicos are beginning to wonder if Democrats can hold their slim majority.

Why it matters: Republicans have their best opportunity to gain Senate majority in 2024 as vulnerable Democrats in three red states are up for re-election.

By the numbers: Democrats are defending vulnerable seats this cycle.

• Only five of the 23 Dem seats (MI, MT, NV, PA, WI) are considered “Lean D”. These seats are competitive, but the incumbent Democrat or Democratic candidate still has the edge.
• Three seats (AZ, OH, and WV) are considered “Toss-Ups”, which are Republicans' best chance to flip.
• Republicans are defending 11 safe seats in red states: FL, IN, MO, MS, ND, NE (both seats), TN, TX, UT, WY.

Races to Watch:

• Arizona: Incumbent Sen. Krysten Sinema (I-AZ) is expected to seek a second term despite her lack of party affiliation. Her third-party candidacy leaves Senate Democrats in a difficult position, do they challenge a senator who votes with them (and who they need in a close majority)? Or do they support a new candidate in a historically red state? Rep. Ruben Gallego (D-AZ) is hoping to be the next Democratic senator from Arizona. Gallego has been racking up endorsements from liberal groups who use to back Sinema. On the GOP side, failed gubernatorial candidate Kari Lake (R) has met with Senate Republicans in recent weeks as she mulls a potential run. A three-way race could put a Republican on a fast-track to victory.
• West Virginia: incumbent Sen. Joe Manchin (D-WV) has yet to announce his bid for reelection in 2024, despite boasting that “I will win any race I enter” ahead of popular termed-out Gov. Jim Justice (R) announcing his senate bid. While Justice is running against Rep. Alex Mooney (R-WV) for the Republican nomination, most expect a general election showdown between Manchin and Justice.
• California: Last week, Sen. Diane Feinstein (D-CA) returned to the Senate after a prolonged absence and amid calls for her resignation due to heath issues. The speculation around her potential resignation caused agita for House Democrats who are running to replace Feinstein thanks to California Gov. Gavin Newsom (D)’s pledge to appoint a black woman to the Senate. This would have possibly given candidate Rep. Barbara Lee (D-Ca) a competitive edge over the popular Rep. Adam Schiff (D-CA), and fundraising juggernaut Rep. Katie Porter (D-CA). Newsom could also appoint a true caretaker who pledges not to run. However, the speculation around Feinstein in the last few weeks has highlighted how competitive the primary will be in California next summer.

The bottom line: Some of these races will be defined by who the parties choose to run. Over the next 18 months, CREFC will continue to highlight the most important races to watch in this cycle.

If you have any questions about this story or the 2024 election cycle, please reach out to Chelsea Neil at cneil@crefc.org. 

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