NAHB GA Update for September

Softwood Lumber

America’s residential construction industry needs a stable and affordable supply of softwood lumber, wood most commonly used for wood-frame residential construction. 

U.S. domestic timber production is not sufficient to meet demand.  In 2017, the United States consumed 47.62 billion board feet but produced only 33.86.  Of the 15.18 bbf shortfall in 2017 (factoring 1.42 bbf in exports), Canada provided 14.17 bbf, or roughly 93%.

With the expiration of the 2006 Softwood Lumber Agreement on Oct. 12, 2015 and the addition of new tariffs imposed this year averaging just over 20%, lumber prices have skyrocketed, hitting an all-time high in June of this year.

In an effort spearheaded by NAHB, 171 Republican and Democratic members of the House and a dozen Republican and Democratic members of the Senate, sent letters to the Trump administration calling on the U.S. to resume softwood lumber trade negotiations with Canada.

The letters, sent to Commerce Secretary Wilbur Ross and U.S. Trade Representative Robert Lighthizer, do not take sides in this trade dispute. They simply highlight the need to come to an equitable solution that will satisfy all sides.

Click here to see if your members signed on.

NAHB Chairman Randy Noel with CEO Jerry Howard and senior staff have also met with Commerce Secretary Ross to discuss the issue.  NAHB is looking into the price increase due to tariffs as well as investigating other contributing factors.

Chinese Tariffs Act as a $1 Billion Tax Hike on Housing, Could Jump to $2.5 Billion

On September 17, President Trump announced he is moving immediately to impose 10% tariffs on an additional $200 billion worth of Chinese imports, including $10 billion of goods used by the home building industry. This 10% levy represents a $1 billion tax increase on residential construction. Making matters even worse, the tax hike will rise to $2.5 billion on Jan. 1 when the president said the tariff rate will jump to 25% if the two nations have not resolved their differences by year end.

If China retaliates, Trump has vowed to place tariffs on an additional $267 billion worth of imports — a move NAHB has strongly opposed.

NAHB continues to work on all fronts to find solutions that will ensure a lasting and stable supply of lumber imports into the United States at a competitive price.

View NAHB’s analysis on how the Chinese tariffs will impact the housing sector.

 

Tax Reform 2.0

In September, House Republicans unveiled a package of tax changes (known as Tax Reform 2.0) intended to build on the enactment of last year’s Tax Cuts and Jobs Act (TCJA) and voted the legislation out of the House Ways and Means Committee.

Tax Reform 2.0 is a package of three bills.

The Protecting Family and Small Business Tax Cuts of 2018 (H.R. 6760) would make permanent the provisions of the TCJA that are scheduled to expire on December 31, 2025. This includes making permanent:

  • the new Section 199A 20% deduction for pass-through businesses
  • the increased AMT exemption amount
  • the new $750,000 cap on the mortgage interest deduction
  • the $10,000 limit on the deduction of state and local taxes (SALT)
  • the lower marginal tax rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37%
  • the increased standard deduction ($12,000 singles, $24,000 couples)
  • the repeal of the overall limitation on itemized deduction (Pease limitation)

 

The Family Savings Act of 2018 (H.R. 6757) focuses on promoting individual and retirement savings.  Notable changes included in this bill would give small businesses a more cost-effective means to offer employees retirement savings plans through the creation of Open Multiple Employer Plans, which is a change NAHB has supported.

Also, families that have Section 529 savings plans for higher education would be permitted to tap into those funds to cover costs associated with apprenticeships.

And the bill includes a new savings program known as Universal Savings Accounts (USAs), which would allow individuals to save up to $2,500 a year on a pre-tax basis. Distributions from a USA could be taken for any purpose, giving individuals a simple, tax-free savings vehicle, which could benefit younger home buyers saving for a down payment.

The American Innovation Act of 2018 (H.R. 6756) would provide start-up businesses with new tax benefits. The bill would expand the Section 195 deduction for certain start-up costs and provide an exception to current rules that limit the use of net operating losses and certain tax credits when there is an ownership change and when a start-up business engages in additional rounds of financing.

At this point, the House leadership remains committed to a vote by the full House on all three bills this month. The Senate, however, has indicated that it will not considered these bills prior to the elections.

Of the three bills, the retirement savings changes have the best prospects for future enactment, as there has been strong bipartisan support in this area.

 

GAO Report on LIHTC Finds Wide Ranger in Median Construction Costs

The Government Accountability Office (GAO) released its long-anticipated report on Low Income Housing Tax Credit (LIHTC) development costs.  This is the third GAO report examining the LIHTC, stemming from a request by Senate Judiciary Chairman Chuck Grassley (R-Iowa) to examine the cost-efficiency and effectiveness of the housing tax credit.

Examining projects completed from 2011 to 2015 across 12 allocating agencies, the report found median per-unit cost of construction ranging from about $126,000 in Texas to a high of $326,000 in California.

From this construction cost data, the GAO reached a number of non-surprising conclusions:

  • Larger projects (more than 100 units) cost less, consistent with economies of scale;
  • Urban projects cost more than non-urban; and
  • Senior housing costs less than housing serving other tenants, potentially due to smaller unit sizes.

The GAO study also examined price differences from nonprofit participation, finding that for projects completed using a non-profit set-aside, the per unit cost of these projects was about $15,000 higher.

In general, the report notes that the vast majority of allocating agencies have policies and practices to limit costs, but the report raises as a “known fraud risk” that few agencies guard against misrepresentation of contractor costs.

However, a limited number of allocating agencies have begun implementing controls to address the risk of fraud involving misrepresentation of contractor costs.

The GAO report recommends to Congress that it designate an agency to collect cost-related data from allocating agencies and periodically assess and report on LIHTC development costs.

In addition, the GAO recommends that the IRS:

  • Require general contractor cost certifications;
  • Encourage allocating agencies to collaborate on standardizing the collection of cost data; and
  • Communicate to allocating agencies how to collect information on and review LIHTC syndication expenses, including upper-tier partnership expenses.

The IRS, in an appendix to the GAO report, disagreed with all three recommendations.

View the full GAO report.

 

Executive Order on Retirement Security

President Trump recently signed an executive order called “Strengthening Retirement Security in America” that is designed to expand access to workplace retirement savings plans for American workers. 

NAHB CEO Jerry Howard attended the signing ceremony, which took place in Charlotte, N.C.

Specifically, the executive order is aimed at allowing two or more employers who are not related (e.g., car dealerships and restaurants) to establish 401(k) plans as one entity. By pooling resources, unrelated businesses could cut costs, which could lead to more companies offering retirement savings plans.

Multiple employer plans would be particularly helpful to small businesses who otherwise may not be able to offer retirement benefits by allowing them to participate in a single, professionally administered plan that affords them economies of scale.

NAHB is supportive of this executive order.

View a fact sheet on the executive order.

GSE Reform

NAHB has joined a coalition of 30 trade associations in the real estate, lending and home building industries to urge Congress and the Trump administration to lock in recent reforms to Fannie Mae and Freddie Mac and take the status of these GSEs out of limbo.

While changes put in place during the Great Recession “have better positioned the GSEs to continue to play a vital role in facilitating mortgage liquidity,” the reforms are still considered temporary, and “thus the stability of the housing market is more illusory than appearances may indicate,” the letter said. “There is a pressing need to ensure that existing progress is cemented rather than cast aside.”

Coalition members emphasized the importance of “consistent, affordable credit to borrowers across the nation . . . broadly available through responsible lenders operating in the single-family and multifamily market.”

Read the entire letter here.

A 10-Year Anniversary Highlights Need for Housing Finance Reform

With Fannie Mae and Freddie Mac now marking their tenth year of conservatorship, NAHB today called on Congress to make it a priority to enact comprehensive reform to the nation’s housing finance system.

Today, House Financial Services Chairman Jeb Hensarling (R-Texas) and Rep. John Delaney (D-Md.) issued a draft of a housing finance reform bill that includes a federal government backstop to maintain stability in the market during times of economic turmoil.

NAHB believes a federal backstop is a critical element that must be incorporated into any overhaul of the housing finance system. NAHB is also urging Congress to enact further reforms that would:

  • Preserve the successful multifamily housing finance framework;
  • Continue the roles of the federal government housing agencies;
  • Provide an equal playing field for small lenders;
  • Restart a fully private mortgage-backed securities market; and
  • Enhance the activities of state and regional sources of housing funding

 

NAHB Recommends WOTUS Definition to OMB

HBA of Delaware President Jim McCulley and NAHB environmentalists met with the White House Office of Management and Budget (OMB) staff to discuss how to define “waters of the United States” (WOTUS) in advance of the Trump administration’s proposed rule.

NAHB’s recommendations would simplify the Clean Water Act and clarify the features that comprise WOTUS to make it consistent with congressional intent, presidential directives and Supreme Court precedent.

These revisions would also provide needed certainty to home builders who face costly delays when trying to obtain permits when discharging dredge or fill material, or stormwater into federally regulated waters.

Ongoing legal battles mean that roughly half the states are subject to the 2015 rule and the rest subject to the ambiguous 1986 definition, resulting in unnecessary confusion for both builders and regulators.

In the meeting, NAHB reaffirmed several concepts the association submitted to EPA in 2017: In short, WOTUS features should include traditionally navigable waters (TNWs), as defined by Section 10 of the Rivers and Harbors Act of 1889, and perennial and intermittent waterbodies when those waterbodies demonstrate sufficient flow volume to a downstream TNW.

NAHB’s objective is a new WOTUS rule that is simple to understand and easier to implement. One way to accomplish that goal is to avoid complicated jurisdictional requirements that demand subsequent case-by-case analyses such as the “significant nexus” test under the 2015 WOTUS rule.

With regard to adjacent wetlands, NAHB urged the administration to adopt a definition that includes only those wetlands that directly abut a jurisdictional waterbody. NAHB also urged the administration to avoid ambiguous and confusing terms that characterize the 2015 WOTUS rule, such as “neighboring” and “similarly situated.”

OMB staff responded with thoughtful and engaging questions. In particular, they asked about the availability of data from the U.S. Army Corps of Engineers, and ease of measuring flow volumes, to define perennial and intermittent waterbodies to TNWs.

Among the additional questions they raised:

  • How should EPA and the Corps define “adjacency” of wetlands abutting a TNW or other jurisdictional water? “Adjacent” means directly abutting or separated only by a natural berm, NAHB said.
  • Why did NAHB’s comments mention the importance of including a separate definition for “wetland” when also defining “adjacent wetland” in a new rule?A “wetland” should satisfy all three parameters under the Corps of Engineers 1987 Wetland Delineation Manual: soils, vegetation and hydrology, NAHB responded. NAHB members have encountered inconsistent application of these parameters, including wetland definitions when only two parameters are present.   

While OMB staff did not provide a timeline for issuing a draft rule, NAHB is closely monitoring their progress and will keep members informed of WOTUS activities. 

 

NAHB Study on Multifamily Regulatory Burdens Spurs Capitol Hill Hearing

A recent study by NAHB and the National Multifamily Housing Council details how regulations account for 32% of the cost of developing new multifamily properties has caught the attention of Congress.

The report acted as the catalyst for the House Financial Services Subcommittee on Housing and Insurance to put a spotlight on the issue and hold a hearing today on regulatory burdens on multifamily housing development.

Testifying at the hearing on behalf of NAHB was Steve Lawson, chairman of The Lawson Companies based in Virginia and chairman of NAHB’s Multifamily Council. Lawson told lawmakers that overregulation of the housing industry is felt at every phase of the building process.

“It results from local, state and federal mandates,” he said. “It includes the cost of applying for zoning and subdivision approval, environmental mitigation, and permit, hook-up, impact and other government fees paid by the builder. In many cases, these projects become financially infeasible and, therefore, are not built.”

The new research shows that well over 90% of multifamily developers typically incur hard costs of fees paid to local governments, both when applying for zoning approval, and again when local jurisdictions authorize the construction of buildings. Furthermore, state and federal governments are increasingly becoming involved in the process and layering on additional levels of fees and regulations.

“Multifamily builders and developers are seeing strong demand, but there are headwinds that have impacted further development,” said Lawson. “Some developers have had difficulty getting projects off the ground due to regulatory burdens and neighborhood opposition in certain parts of the country.”

To help ease regulatory burdens and improve housing affordability, NAHB is urging policymakers to:

  • Consider the cumulative effects of regulatory requirements to determine whether a new mandate is necessary to protect the health and safety of the public, or if it is simply a means to achieve a policy goal;
  • Remove barriers to production of multifamily housing;
  • Ensure that energy codes and standard are cost-effective, affordable and have a reasonable payback period of 10 years;
  • Enact common sense updates to Davis-Bacon wage determination policies to help builders construct more affordable housing;
  • Call on the Trump administration to resolve issues related to lumber and steel tariffs, which have needlessly raised the price of building materials; and
  • Maintain and properly fund federal rental assistance and multifamily production programs to serve very low- and extremely low-income Americans.

Read the full study.

 

Democrats Introduce Several Bills Focusing on Affordable Housing

In the final days prior to the start of the traditional August congressional recess, Democrats in the House and Senate have put the spotlight on the affordable rental housing crisis by introducing a number of new bills.

Here is a brief summary of the legislation:

  • On July 19, Sen. Kamala Harris (D-Calif.) introduced the Rent Relief Tax Act (S. 3250), which would create a new, refundable tax credit for renters who pay more than 30% of their gross income on rent and utilities.  The bill has four Democratic cosponsors, none of whom sit on the Senate Finance Committee.
  • On July 26, the Assistant Democratic Leader in the House, Jim Clyburn of South Carolina, introduced the Restoring Tax Credits for Affordable Housing Act (H.R. 6542).  This bill would increase state Low Income Housing Tax Credit (LIHTC) allocations and modify the discount rate formula used to calculate the 9% credit rate.  The goal of this bill is restore the equity lost as a result of the lower corporate tax rate.  H.R. 6542 has 23 Democratic cosponsors, but none of them are on the tax-writing Ways and Means Committee.  Rep. Clyburn also cosponsored H.R. 1661, the Curbelo-Neal bill to strengthen the LIHTC, at the same time he introduced this bill.
  • On Aug. 1, Sen. Cory Booker (D-N.J.) introduced the Housing, Opportunity, Mobility, and Equity (HOME) Act of 2018 (S. 3342), which would also create a new refundable tax credit for renters.  The bill would also seek to require communities to adopt “inclusive zoning policies,” which would be of concern to NAHB.  NAHB does not support federal pre-emption of local or state land use authority.  S. 3342 has no cosponsors.

While none of these bills enjoy bipartisan support or even support of any Democrats on the tax writing committees, they show a growing focus among Democrats on affordable housing. It is notable that two of these three bills focus on creating a renters’ tax credit, an idea that has drawn criticism from the LA Times and the Tax Foundation, and by some estimates could cost $76 billion per year.

Unfortunately, renters’ tax credits do not address the fundamental problem driving the affordability crisis, which is lack of inventory. Nonetheless, NAHB will seek to leverage this newfound energy on affordable housing into action on H.R. 1661, the Curbelo-Neal bill, and S. 548, the companion Senate bill sponsored by Sens. Maria Cantwell (D-Wash.) and Orrin Hatch (R-Utah).

We anticipate that in the coming weeks, additional legislation will be introduced related to affordable rental housing.