Commercial Real Estate Mastery: Episode 36
Don’t Worry About The Road To Housing Act
Congress recently passed the “Road to Housing Act” which was supposed to make significant changes in housing and create new complexities in investing in that sector. However, the final version is not the landmark initiative that America was promised. In this Commercial Real Estate Mastery podcast we’re going to review this legislation in detail.
Episode 36: Don’t Worry About The Road To Housing Act Transcript
The 21st Century ROAD to Housing Act became law on July 11th. It kind of had a very anticlimactic origin because Trump refused to sign the thing after it was passed in Congress. So they had to wait 10 days until it became law. And you saw very, very little fanfare since there was no signing ceremony, not much discussion of it. But maybe that's all it was worth, to be honest with you, because as far as an act goes for real estate, it has very, very little impact on the horizon. This is Frank Rolfe with the Commercial Real Estate Mastery Podcast. We're gonna explore and drill down a little bit on the 21st Century ROAD to Housing Act.
Now, the act began because in Washington, D.C., people are obsessed with trying to make the appearance of being concerned about affordable housing. It's a big issue with many voters. So everyone wanted to be on the docket of saying, "Yes, I'm doing everything I can to make housing cheaper." But the problem is that the Act itself doesn't have any such mechanics to ever make housing cheaper. It talks in depth about the things they think that are holding affordable housing back, such as preemptive zoning that doesn't allow for people to build subdivisions and things of lesser-priced homes. That's an issue. And it also talks about the methods of building houses, which currently are unable to be done under the Uniform Building Code.
Uniform Building Code is a set of laws that states when you build a house, how deep the foundation has to be and the roof trusses and the amount of plywood, etc. But it also limits things because a lot of the new ways you can build cheaper houses potentially are, for example, 3D-printed homes, but it doesn't allow for any of that. So it's kind of been a blockade now for decades and decades against new forms of higher-tech building methods. But again, it talks about them, but it doesn't really offer up any solutions. Instead, what it does is it says we need to have more meetings on these topics and we need to try and encourage cities to allow zoning for lesser-priced homes and encourage cities to relax the Uniform Building Code.
But as we all know, encourage as a word has absolutely no teeth in it when it comes to the government. It's kind of like when Teddy Roosevelt was accosted on different issues, he would always say things like, "We shall endeavor to persevere." There's nothing more meaningless than saying, "We shall endeavor to persevere." What's that even mean? It means you'll do your best to do your best. There's no accountability in that statement whatsoever. And that's what the Road to Housing Act offers. It offers zero accountability. It doesn't even give a roadmap to accountability, doesn't give dates in which things would be discussed and then enacted. No, it just is just a giant amount of meaningless talk in the wake of a midterm election year.
Now, one part of it that people thought would have a lot of impact was regarding private equity groups buying a lot of single-family homes. A lot of small single-family home buyers, speculators, and the American public thought this was gonna be a big deal. But in the end, when it passed, it really isn't. It has a cap of 350 homes, but everyone is grandfathered where they are now. So it doesn't mean you have to shrink down to 350. You don't have to sell off thousands and thousands of homes you may own. No, you're grandfathered that you can keep all those as they are, but if you're over 350 now, you can't buy any more. But even then, it doesn't deliver. What it has in there is it only stops you from buying homes if they're in finished status. But if in fact what you're doing is you're going to go out there and buy homes that need to be renovated, well, from my reading of it, there's no limitations on that at all. It also has no limitations on the whole concept of build-to-rent neighborhoods. Build-to-rent neighborhoods, in fact, are exempt.
So a private equity group can own many thousands and thousands of homes that were built in designated build-to-rent neighborhoods at no issue. And finally, big companies are allowed to buy and sell homes amongst each other as much as they want. So let's look at that for a moment. Let's assume you had reached that cap of 350 homes. You could just go ahead and sell those 350 homes to some other subsidiary or other entity and then reload another 350. So the bottom line to it is on that one issue which people thought was gonna have a lot of impact, it didn't deliver anything at all. Now, of course, it didn't really have any impact because studies found, despite all of the government hyperbole on the fact that it was big private equity groups destroying single-family, that single-family is only owned less than 1% by private equity groups. So even if they had not put all the loopholes in the 350-home concept, the net impact would have been negligible. I don't even know if we would have even detected anything regarding lowering single-family home prices.
So in a nutshell, that's kind of where you are with the ROAD to Housing Act. It's a road to nowhere. It's a dead-end street, if it's a road at all. It didn't accomplish a darn thing. But it does then beg the question, okay, well, if that failed after all that fanfare, is there really anything the government can do? And the answer is, I don't really know. Because most of your zoning in America is done locally. Every city, town has its own planning and zoning committee, and they're the ones who really do all of the zoning. It's not done on a federal level. So from a zoning perspective, probably not. But I think the main thing the government might be able to do at some point, but you don't know, is maybe push states a little harder on housing options that violate the current Uniform Building Code. Because I don't know about you, but I've seen homes in magazines, Dwell magazine, Architectural Digest. I've seen 3D-printed homes. I've also seen homes made of steel containers, Boxabl homes, things like that you can get from Amazon. They look really nice, and they're really, really cheap. And the only thing holding those things back is the imagination of builders and the Uniform Building Code.
So I think in the future, if you're gonna really try and strike at the heart of the affordable housing crisis, what you'd have to do is embrace new technologies to build homes. A 3D-printed home, which is nothing more than a computer that's spewing out concrete in the shape of a house, when that house is complete, it's impervious to almost everything. It can't burn, can't blow down, don't have any issues with termites or things like that. It's clearly a superior building method in many cases, and it's widely adopted in Europe. Maybe people should look at how Europe builds houses today and compare those to America and come up with a template on how to do that. But as usual, whenever you look to the United States government to get something solved, it always fails. It was Ronald Reagan who said the nine most dangerous words in the American language are, "I'm here from the government, and I'm here to help." And that's kind of true. Haven't seen anything even on the horizon or even discussed remotely in the government that would have anything to do to lower housing prices.
Now, from an investment perspective, that might be good news if you are a housing investor. If you operate in the world of mobile home parks, if you operate in the helm of rental homes, apartments, the fact that creating affordable housing allows you to push rents and prices up because you don't really have any competition. And we all like an absence of competition. Warren Buffett, his big thing was always having a moat to protect his investment. So maybe the fact that the ROAD to Housing Act has miserably failed and will always fail is very much of a positive for those who invest in the affordable housing arena. This is Frank Rolfe with the Commercial Real Estate Mastery Podcast. Hope you enjoyed this. Talk to you again soon.
