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Welcome. It's episode number 51 of the Rent.
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Roll, your podcast on all things rental housing, apartments, SFR and btr. You know, it's September, right in the middle of September, and that means we're in the throes of the fall conference season. Lots of travel, lots of events. You know, that period from Labor Day through the week before Thanksgiving, and heavy time for travel and events and meetings and whatnot. And, and so I'm no exception to that, and many of you are as well. We're here this week in our Nation's capital in D.C. for the NMHC fall meeting. Always a great event with a heavy focus on policy issues.
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So that's going to be a big.
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Focus of today's episode. And our guest today is someone who's at the heart of trying to find lasting, bipartisan, truly viable solutions to our nation's challenges around housing affordability and housing availability. He is Dennis Shay, the executive Director for the Terwilliger center for Housing Policy at the Bipartisan Policy Center, a center within a center, as Dennis says. He's also a former assistant Secretary for Policy at HUD and Housing and Urban Development, and he's also served as the U.S. trade Representative and Chief of Mission in Geneva at the World Trade Organization wto, among other roles. So he knows the stuff. And prior to our conversation with Dennis, we're going to talk about interest rates. We'll talk about the bid Ask Gap, which obviously is related. We'll talk about challenges accessing capital today. And we're also going to review another busy week of headlines touching on issues critical to the apartment and SFR industries. All right, so lots to do before we jump in, I want to give a big thanks to our sponsors. First and foremost, thank you to jpi, a leading apartment developer with the purpose of transforming, building, enhancing communities and improving lives. JPI is active in Texas, Southern California, the Southeast, and the Pacific Northwest. Also, a big shout out to Madera Residential, a leading apartment owner operator in Texas and also expanding into the Southeast. All right, so as always, kick it off with Here's a chart. Okay, so we got three charts to show with you. Show to you this week. And the first one, you know, the, the big news this week is what the Fed does on rates. And so by the time you hear this, whatever I could say about that is going to be dated, unfortunately, because that announcement is going to come out the day before this episode airs. And unfortunately, we're airing it. We're recording this two days before the before the episode is able to air due to logistics and travel. So. So again, whatever I say could be a little bit dated, but I do want to just talk briefly about this, given that there's more and more momentum toward a rate cut. And we'll get more into this next week once we see what the Fed actually does. And I want to show a chart that I believe strongly deserves more attention than it's getting from economists and certainly the Fed and other policymakers. And I think it provides a good data driven, rational path for the Fed to cut rates fairly aggressively without it being political. And that is to look at inflation of shelter, which is housing versus all other items. Now, by now you probably know that the CPI shelter is deeply lag. I've talked about this here before. If you don't know it, you can quickly Google it. It's been well documented. It's the only component of CPI that isn't a realer time metric. By that what I mean is what you see on the street should reflect in CPI for things like gas and groceries and clothing and automobiles, et cetera, but not, not for housing. It's a purposely lag measure by design.
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And again, I'm not getting all the.
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Mechanics of it, but if you don't know what I'm talking about, just Google it. And it's important because shelter is about 30% of the CPI's weighting. It's the single largest variable of inflation as we measure it. And the CPI shows shelter growth is cooling, but it's still up nearly 4%. And obviously we know rents aren't up 4%. Home prices, which aren't even part of CPI, they're not up 4%. So that number is being entirely driven by a lagged version of rents. And those rents, that lagged version of rents, it's based on a lag survey, about 7,000 renters a month surveyed. That same set of renters surveyed once every six months. So it's an evolving revolving set of renters being surveyed that is what's carrying keeping inflation higher than the Fed's target range. Now here's the punchline, here's where I'm going with this. If you strip out that lagged version of rents and inflation is then in that Fed's target range of 2% for two plus years, as you can see from this chart. Or if you want to say, hey, we can't just take out all shelter, that's ridiculous. Okay, that's fair. But let's look at a realer time version of, of new lease rent data. And if you do that inflation would actually be below 2% at many points over these last couple of years. So that's the metric, that's the data point that you can use to support rate cuts with still being fully based on the data. Because nothing the Fed does, absolutely nothing, can expedite the pace of shelter inflation cooling any faster than it will. And when it has, just by design, by how the CPI shelter methodology is built, it's I've said this before, it's like an 18 wheeler riding its brakes down a mountain. And if you've ever watched an 18 wheeler go down a mountain, you know what I mean. Now to be fair, we do have some re accelerated inflation in the non shelter categories of light. That shelter, I'm sorry, that number is up about 2 1/2% now, so it's a little bit late. But even still, the inclusion of lag shelter data is making CPI stickier and higher than it would be if using realer time rents. Now I've said this before and I'll say it again. Ironically, the low rate environment of the past is what drove this cool down in shelter. By that I mean low rates led to high supply which helped tame rent inflation. Higher rates of today has crushed the construction pipeline which ironically will put likely put upward pressure on rent inflation again at some point in the future. Of course, that lag comes into play in the future as well. So if rents do re accelerate in 2026, as many people expect, we probably won't see it show up in CPI until 2027 at the earliest. And even then, I don't think it's gonna be anything like the peaks that we saw just a couple of years ago. Okay. All right, next up, I want to share two charts from the latest commercial real estate investor survey by John Burden's Research and Consulting and CRE Daily. They call it the Quarterly Fear and Greed Index. I don't love that name at all, but I do appreciate the data in it. The first one I want to there's.
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A bunch of stuff in here.
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I recommend tracking it down if you haven't already seen it. But two charts I want to highlight from this survey. The first one asks at what cap rate would you aggressively deploy capital? And for multifamily the survey says 6.6%. And of course if you watched our Capital Markets Update last week, you know that's about 100 basis points above the current average. Of course, because you have to watch our our our podcast last week to know that. You probably already know that if you're in the industry in Other words, most investors are still sidelined if they don't want to be aggressive until rates are 6.6%, because that's probably not going to happen. And if it does, there's probably a lot of other bad things happening in the economy that would drive up rates that high. Cap rates that high, I should say. And that's about the same, by the way, the 100 basis point spread, that's about the same as other CRE categories as well, Office, industrial and retail in this survey. So that's a super interesting data point highlighting the bid ask gaps, keeping sales volumes so low.
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All right, second chart I want to.
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Show you from that same survey. This one is an index measuring access to capital. Any number below 50 means access to capital is harder today than in the prior quarter. We've seen numbers below 50 going back to start of 2024 in this survey and probably before that as well. The Q3 25 number for multifamily is 41. And what that means very simply is that it's still very, very tough to access capital. It's still hard to access capital. That's a big challenge for developers and buyers, of course, but that trend line is incrementally improving. The number was below 30 in the first half of 2024. It was in the 30s in the first half of this year. And so in Q3, we're up to 41. So we're slowly, very slowly trending upward. And obviously a meaningful rate cut would likely improve that number as well. All right, so next up, rental housing trivia. All right, today's rental housing trivia question is how many rental units are in the Low Income Housing tax credit program LIHTC, according to HUD. I'm gonna give you five choices. Is it 1.7 million, 2.7 million, 3.7 million, 400, 4.7 million or 5.7 million? Okay, so there's your first big hint. We know it's going to end in a 7 million, but what is the first digit? 1, 2, 3, 4, or 5? So give that some thought and we'll answer it in a bit. But first in the news. All right, in the news, when we review headlines touching on rental housing. And we got a bunch this week that I think are generally varying levels of importance, but certainly interesting. The first one I think may be more interesting to those of you in the industry. I think more important for those who only track it tangentially or at least on, on the, a little bit of kind of on the side and don't really Follow the, the details too much. And that's about rents and reported rents. So let's play a game. I'm going to read you five different headlines on the same topic. You tell me which one is different. Like one of those, you know, standardized tests your kids do in school. Which one doesn't belong?
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Okay, here we go.
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First choice. A, rent growth in the United States declined. B, rent growth cooled. Three, asking rents were down. Option four, the national median rent dipped in. Option five, asking rents rise most since 2022. Okay, I know that was tough, but I hope you guessed number five was the outlier. Those first four headlines were from Costar Yardy, RealPage and Apartment List. That last one came from Redfin. And yes, even for Redfin, it's all apartment. Specifically, Redfin says their data represents properties with 25 plus units. So I don't, I don't want to pick on anyone. You know, I generally just ignore this stuff. But you know, I've seen this get picked up a lot in some of these different headlines. And the thing is the challenge, there's so many data providers today, including a cottage industry of listing websites. And that creates a ton of genuine confusion among reporters, policymakers, consumers, and even I think among macro analysts and economists who don't track, you know, rental housing in their day to day job. And this one isn't certainly the only example. Some of you may remember a couple.
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Of years ago there was a story.
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That I picked up in the New York Times based on a listing website that instead some town in New Jersey was, had had America's most expensive rents. And I remember people looking at that like, like saying what? Like the New York Times says, this website says this is the most expensive city in the country. You read through the details from that, from that listing website. Well, it turned out they'd excluded New York City in their analysis. And I would say, well, if you're going to name the nation's most expensive city, you probably need to include the nation's most expensive city in your analysis. Right? So this Redfin one has earned some headlines as well. Even saw an eye catching graphic from Newsweek showing where rents had risen the most using Redfin's data. And to be fair, Redfin, like most websites, is just reporting data based on listings on their own website. They have a good team of analysts and economists. I'm not trying to knock them. And it's. So it's not necessarily that their data is quote, quote wrong, but it's also not clear if those listings are representative of the broader market now, one great thing about the rental housing business and for both renters and for operators, is that rents are very transparent these days, thanks to Internet listing sites and property websites. But not every property is listed on every Internet listing site. Every data provider has different aggregation methodologies. So it's always good to understand the limitations of any data source. And when endowed or you're not sure about particular data source, cross reference it with other data providers as well, and certainly with some of the bigger, more established ones. All right, this next headline is Getting the Single family Rentals. And it's a really interesting story. I'll tell you. I saw this headline, I'm going to read to you in a second and immediately I'm just skeptical, like, oh, here we go again, because it's from NPR and specifically the Planet Money newsletter. But I'll tell you, it's like, it's actually a good read. Okay. And there's some things in there that I think are very, very good and some things that I would challenge a little bit, but it does a good job seeking balance. So let me read from this a little bit the headline. Here's what happens when private equity buys homes in your neighborhood. Okay, so let me read this. Now that these institutional investors been buying and renting out houses for more than a decade, researchers have had time to study their impact and they found a surprising nuance. These investors can and do make homeownership harder to attain, just as their critics claim. But let me stop there for a second. I think this is a gross over oversimplification. Some of you heard me talk about this before. I think it's important to remind ourselves that most of the large SFR portfolios achieve scale in the early 2010s when individual buyers were totally sidelined. For the most part, investors stepped in at that point. By the mid 2010s, I think it was sometime around 2015, I forget the exact year. At that point we started to see homeownership rising again and it rose every single year through 2024. So. And it probably backtracked a little bit this year because of rates, of course, which we just talked about. So that means unequivocally with that 10 year improvement in homeownership, that means the only way you do that is if individual buyers out muscle investors for market share. Okay, so that's what happened. And that's, I mean, just that just look at the homeownership. Right, that's quite clear. And secondly, let's remind ourselves that institutional investors comprise only a low single digit Share of the market. Most investors obviously, as you know, are small local groups on pop.
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So let's get back to the story though.
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I'm going to read from it again. This, this is where we get into, I think the more interesting nuance here, this is why I'm bringing it up. But by providing rentals, they also make neighborhoods more affordable and more diverse. They are diversifying the suburbs. Connie Chang, who went on to get a PhD in economics from UC Berkeley, he assembled and analyzed data on neighborhoods before and after corporate landlords showed up, including demographic data on the residents. His biggest finding, institutional investors were reducing segregation. When private equity rented out homes, the new tenants tended to be lower income than the prior owners and more likely to be young and non white. And the researcher said, the economist, he said, I think the most surprised, I think I was most surprised with the fact that the effect was so sharp and immediate. And he took it as a sign that these families really wanted to live in these areas, but prevented from doing so by the lack of rentals and their inability to get a mortgage. This is particularly notable because one of the most important economics findings of the past decade is the impact on children's development and career prospects of their hometown and neighborhood. Another study, for example, showed that single family rentals North America in North America, specifically in North Carolina, excuse me, served as quote, a pathway for access to high performing public schools for economically disadvantaged children.
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So there you go.
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Kudos to NPR for pointing that out. The advantages to having more rental homes that diversifies neighborhoods gives kids access to better schools, better career prospects. The research backs that up.
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So anyway, this is a long read.
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For NPR again specifically the Planet Money newsletter. But it is a good read. It's well document, well researched and pretty balanced. And also talks about goes on talking about why a ban on corporate ownership of sfr, which is an idea by the way. It's been proposed by both Republicans and Democrats or people from both parties, I should say, not necessarily the parties themselves. Why that's a bad idea among other things. So give it a read if you want to dig in more.
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All right, moving on.
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Next headline comes from the Financial Times. It says Brookfield and talks to buy US landlord from Singapore's GIC and $10 billion deal. The purchase of yes communities would be one of the sector's largest takeovers since 2022. Okay, so let me read the article a little bit. Says Brookfield Asset Management is in talks to acquire a US landlord of manufactured homes from Singapore's sovereign wealth fund GIC for more than $10 billion. The purchase of yes Communities would be among the $1 trillion in investment group's largest deals and signals rising optimism at the health of the US Real estate market. After a crunch caused by higher financing costs. The Canadian investment group Brookfield would be making a large bet on the lower end of the US Residential property market. A vote of confidence in the strength of the world's largest, largest economy, as some of the recent economic data has pointed to a slowdown. All right, so YES is based in Denver, despite being owned by gic. It's based in Denver, has a portfolio of tens of thousands of manufactured homes in and around 300 communities across the US mostly Southeast and Midwest. According to the FT, the homes are built in a factory and shipped to their site. So obviously it's been, it's been really interesting to see manufactured housing become more institutional in recent years. And of course this isn't new. I mean, GIC is institutional as well as Brookfield Field. So not a lot of great data. These still on manufactured housing. I'd love to see more data come out to be, to make it easier to track and obviously that would make it more liquid as well, but hopefully we get to that point. So interesting story here. Next headline comes from the Seattle Times and it says, Amazon pledged to support affordable housing. How has it fared so far? And this is a good read as well. I, I learned some stuff here. It says, let me read from this. It said Amazon launched its fund in 2021 with initial commitment of $2 billion in the form of loans and grants to create and 20,000 affordable housing units across three metro areas where Amazon's presence is acutely felt. Seattle, Arlington, Virginia and Nashville. The fund was supposed to stretch out over five years, but last year the company said it already exceeded the goal. The projects it funded had completed 21,000 units. 8,600 of those were in the Seattle area. The company then committed another $1.4 billion to create an additional 14,000 homes across the three cities. Now it has hit 10,000 units in the Seattle area. Amazon's approach is to pick out local developers and housing authorities and supplement existing funding with loans and grants. Most of the affordable housing Amazon supports has area median incomes ranging from 50% to 80% of AMI. So great program, kudos to Amazon. Great to see those results. Some big numbers and I commend them for their approach in working with local developers for funding those gaps in the capital stack. Love to see it. All right, next headline actually takes us to Arlington, Virginia, where Amazon of course has A presence, a big presence. And does some of their work there on housing as well. This headline comes from BIZNOW. It says, JBG Smith abandoned 1400 unit apartment project. The publicly traded REIT said in a filing with Arlington county that it no longer intends to build two towers totaling more than 1,400 apartments. Apartments in the National Landing neighborhood. JG, JBG, B&G are hard to get right together. Let's see, JBG Smith filed plans in late 2021 and received county approval in early 2023. Which by the way, that gap itself, how much did that impact the deal? I mean, it took more than a year, you know, maybe it was a year and a half or whatever that is to get that project approved. I'm curious about the timing, how that played a role here. But anyway, this project, the developer demolished a five story office building and a one story retail building to prep the site which has been used as volleyball courts for Volo sports since last year. In addition, the two multifamily towers, JBG's project would have included 17,000 square foot of retail and 12,000 square feet of public park space. Now look, I don't know the details of this project and I don't want to pretend like I do, but obviously first of all, when it was first proposed, that was 2021, you had lower rates, you had rent growth at surging, you had demand the highest levels on record. A lot has changed since then.
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And again, I don't know the specific.
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Project, but I do know, and I hear this all the time, from developers, that high rise steel frame projects are very hard to do right now. Now tariffs are an easy target and JBG Smith did list that among the reasons. But urban high rises are challenging, even absent tariffs, for a simple reason. And that's that values are down due to higher cost of debt. So we're seeing urban class A projects trading, especially urban class A projects, high rises trading well below replacement cost. And that creates very tough math for any developer. You can't build something for less than it's worth unless you're going to be a very long term patient owner. You know, we know steel frame projects are particularly vulnerable in this type of environment because they're more expensive to build, build, even pre tariffs. And rents aren't rising nearly enough to offset those higher debt costs. And so what we do see and get built right now is generally here's all the time for developers we talk about as well. They're generally looking at lower cost wood frame, low rise Construction often sourced with American lumber.
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So I've said this before.
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We've had developers in this program say it as well. The tariff impact for that typical garden project is likely to be in the low single digits and probably higher for a high rise project like this. So tariffs are a factor. Yes, and I don't want to completely downplay it, but generally speaking, and again, I don't know the details of this project, won't pretend like I do, higher rates and soft rents are the bigger challenge for high rise developers right now. And I get without seeing the pro forma, I would guess that what they expected in 2021 in terms of rents hasn't played out in the market. All right, the next headline comes from agc, which is the Construction General Contractors association, and nccer, which is the national center for Construction Education and Research. And they did a survey of the construction workforce. I'm just going to read a little bit from this. It says another policy change has begun to defect contractors and step is stepped up immigration enforcement. Okay. More than a quarter, 28% of respondents report their firm has been affected directly or indirectly. Specifically, 5% report a job site or off site was visited by immigration agents. 10% say workers left or failed to appear because of actual or rumored immigration actions. Another 20% report subcontractors lost workers. All right, so this is something important, which is, if you ask a lot of developers or builders, you know, they'll tell you they're more concerned about future construction worker availability than they are about tariffs. Okay. So we do hear anecdotally about this happening quite a bit. This is the first I've seen data around it. What we hear is that immigration agents show up at or even near your site. There's going to be some workers just don't come back out of fear or other reasons. So that's important because we know from the national association of Homebuilders that something like 40% of construction workers in the housing industry weren't outside the US So it's very tough to put real data behind how widespread this issue is or how much impact and construction, construction, construction, labor. But certainly it's a factor to watch. You know, the issues might be mitigated today somewhat by the fact that we're completing a lot more projects than we're starting, especially in multifamily. And so there's, you know, right now there's, you know, there's labor looking for jobs, especially, you know, the subcontractors competing for jobs again. But once we get to a point in the cycle where construction is ramping up again, will we see labor shortages? And if so, how soon could that happen? So that's interesting to watch. So interesting survey here.
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All right, let's come back to our.
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Rental housing trivia question of the week. The question was how many rental units are in the Low Housing Tax Credit Program? Low Income Housing Tax Credit program, excuse me, LIHTC according to HUD. And we gave you five choices. Was it 1.7 million, 2.7, 3.7, 4.7, or 5.7? The correct answer is C 3.7 million LIHTC units according to HUD's LIHTC database, looking at units placed in service between 1987 and 2023. And those 3.7 million units come across 54,100 and two different projects. All right, next up, it's time for today's interview, which is sponsored by funnel, the AI and CRM software trusted by four of the six major REITs and many more leading operators like BH and Cortland. To learn how Funnel can help your property centralize operations and automate everyday tasks, visit funnel leasing.com all right, today's interview is with Dennis Shea. As I shared earlier, Dennis is the executive director of the J. Ronald Terwilliger center for Housing Policy at the Bipartisan policy center in D.C. he formerly served as at HUD and as a U.S. trade representative, as I shared earlier. And of course, the center he leads is named for and founded by Ron terwillger, the former CEO of Trammel Crow Residential. Ron had that role from 1986 to 2008, back when Trammel Crow was one of or if not the most active apartment developer in the country. Today you'll find Trammel Crow alumni all over the industry in leadership roles across the country. So Ron has had an incredible impact both in housing development and now in housing policy. So it's a pleasure to welcome in the executive director of the housing think tank he founded, Dennis Shea.
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All right, welcome to the interview portion of today's podcast and I am honored to welcome Jay, who's the executive director at the Terwilliger center, which focuses on housing as part of the Bipartisan Policy Center. So, Dennis, thanks so much for being here.
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Jay, it's great to join you. Good to be on the rent roll.
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Yes, yes. We love having you here. So before we get into it, tell us a little about your background and how you ended up focused on housing at the Bipartisan Policy Center.
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Well, I have some housing experience as a government official, as assistant secretary for Policy development and research at HUD during the administration of George W. Bush. I did work with the Bipartisan Policy center as a consultant on a report that they issued in 2013 called Housing America's Future was basically a report issued by a blue ribbon commission to explore what the housing system should look like in the wake of the Great Recession. So a lot of the focus was on housing finance reform, but also on the rent, rent and, and home ownership and other future challenges. And I got to meet Ron Twilliger, who was a member during that experience, who was a member of the. Subsequently did some work for him on a foundation that, that he had started. I happened to be in Geneva, Switzerland for a job for a few years, and I came back to the United States and BPC and Ron were thinking of forming, or Ron was thinking of forming a center on housing policy at bpc. So I knew both. Ron. I also knew the people at the Bipartisan Policy Center. So it all came together and I've been working in this position for about four years and just amazed at Ron's total commitment to housing. And you know, he is, as I like to say, he does retirement very badly. I've never. He's just involved in so many different things and has so much energy and, and commitment.
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Yeah, no, that's great. It's an important topic and one that I think it's encouraging to see more and more focus on, on housing issues nationally. Traditionally, it's been very local and it always will be.
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Right.
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But seeing more national focus around this is, I think, you know, been a. Been a real encouraging trend, I guess.
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No, absolutely. I mean, when I worked with Ron in his, in a previous incarnation with his foundation, we used to call the housing affordability challenges in the United States the silent crisis, because this is eight, seven, eight, nine years ago. The housing affordability challenges were still very significant back then, but it was silent. It was largely ignored by policymakers, particularly at the federal level, largely ignored by the press. But now it's certainly not a silent crisis. I think it's one of the top, top issues in Congress today.
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Yeah. So to that point, just as we're recording this, there's some news that the White House might consider declaring a national housing emergency. And we don't know all the details yet what that could mean. It appears they're trying to really get supply going more. But just give me your kind of initial reaction to what you've read on this so far, what it might mean for housing production.
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Well, I'm not surprised. The President has made. President Trump has made housing affordability an issue. He made it an issue during the campaign. Of course he's been pushing for lower interest rates. But I suspect that the administration will be taking an approach, a deregulatory approach, looking to find ways to encourage states and localities to streamline regulation to make permitting easier basically to unleash housing supply and construction and get rid of the impediments, the regulatory impediments to that. So I don't think they're going to try to supersede local or state control over housing, but I suspect they would try to encourage states and localities to make housing construction, both rental and single family, easier to do and lower cost by doing so.
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Yeah. And particularly I think that gets to something that I know you've written about, which is potentially even tying some of these federal subsidies or tax benefits, LIHTC funds, things like that, to some type of national standard that creates more efficient use of tax credits. Is that something you think might play out here?
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Yeah, I mean, we at the BPC, at the Terwilliger center, we are strong support quarters of the low Income Housing Tax Credit. We feel it's helped finance about 4 million affordable rental homes since it was first created in 1986. But when you read reports, a lot of it's anecdotal, but in certain markets, costs are $800,000 per unit, a million dollars per unit for LIHTC, even more. You wonder what's going on, what's driving up these costs? And we're, you know, we're concerned that might have political risk for, for LIHTC because we, we feel it's been a useful and important program, but we don't want political opposition to build around it. So several members of our advisory committee, we work through an advisory committee at the Terwilliger Center. Several members of our advisory committee recently wrote a letter to Secretary Besant urging him now that LIHTC was expanded in the one big beautiful bill act, now's the time to look at ways to maybe reform the credit to make sure we're getting maximum number of units per litec allocation. So they suggested a number of things. One common building standard, that would be national Common Qualified Allocation Plan. If you go exceed the building standard, if you exceed the common qap, the states would have to pay for it, not the federal government. Things like Davis Bacon exempting LIHTC projects that are blended with other federal funding streams from Davis Bacon prevailing wage requirements or from NEPA National Environmental Protection act requirements which, you know, add costs. So basically the thrust of the letters, let's try to find ways to streamline to maximize the number of LIHTC units that can be created per. Per federal dollar allocated to lihtc. So I would not be surprised, Jay, if be encouraged to see if some of those ideas in some form seep into whatever action Secretary Besant is contemplating. Through the president, of course, through an executive order.
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Right. Yeah. I mean, like common sense, like if we, you know, with places like la, you believe there's markets where it costs a million dollars per unit to build affordable housing. And to me, it's like, hey, look, if you want to use these federal funds, you got to play by a certain set of rules like that. You know, just giving people blank checks to then add whatever laundry list of requirements to it to drive up the price. That seems counterproductive to the real purpose of the Low Income Housing Tax Credit and other housing subsidy programs.
- [34:20]
C
Yeah. I mean, part of the LIHTC success of lihtc, at least from the state level, is that it's sort of a state federal partnership where priorities are decided at the state level through the qualified allocation plan process. But the federal support is there. But at some point you have to, There needs to be a balance where if you're spending a million dollars per unit, that's just. And if you're spending more per unit for an affordable unit than for a market rate unit, there's something, there's something wrong here. So there's. I think there needs to be more data. One of the things in the letter to Secretary Besant was to sort of encourage the Treasury Department to identify what are the hard costs in LIHTC projects and what are the soft costs, the legal and syndication costs, what are they? No one really has a great handle on these costs. So, yeah, so there's a balance. It's important to get the, you know, focus on state priorities. But at a certain point, these are federal tax dollars and we need to, we need to get the units out, the homes built as much as possible because there's such a need out there for, among lower income families and households for sort of an affordable rental apartment.
- [35:35]
A
Yeah. Low and middle income. And I think in terms of priorities, though, Dennis, I would say that, you know, maybe the states have a role in where these things go, but the end of the day, housing's housing. People need housing. And I think you mentioned Davis Bacon. It seems like there's more and more awareness now. And I wouldn't say, you know, bipartisan view that Davis Bacon has been what's the word I'm looking for just, just negatively impacting the cause of getting more housing built because it's driving up the costs. And I think in some ways this is a topic where the, it's been misunderstood, where it's, people think, okay, well this is. Prevailing wages is a good thing. Well, prevailing rate is wages really means that you're going to overpay for construction labor relative than what you would for a normal construction project, well above minimum wages, et cetera. So do you think we'll see more support, more momentum around that topic?
- [36:32]
C
You know, it's interesting you raise that. I do think you'll see more momentum. I think there's a lot of momentum on the environmental side. I mean, you saw Governor Newsom wave support waiving requirements under, under the California Environmental Quality act to build affordable housing in California that became legislation. I believe you saw something similar at the national level included in the Road to Housing act, which passed the Senate Banking Committee unanimously. So I think there's kind of bipartisan support building on the environmental. Some of these environmental requirements with respect to infill housing and urban areas is really, they, they really are not necessary. And I, I see bipartisanship around that and I think I see less around Davis Bacon so far. But I could see that sort of developing over time with the broad, there is broad recognition now among both parties that we need to build more homes. We've underbuilt housing by millions of homes, both rental, particularly the affordable and starter homes for sale since the Great Recession. So there's bipartisan support, sort of let's do things to, to increase supply.
- [37:50]
A
Yeah, and I'll give a shout out. I think even the, the left wing, the progressive movement of the YIMBY movement has even addressed. David, obviously this is a mo. It's not a person.
- [37:59]
B
Right.
- [37:59]
A
Or this is a broad movement. There's more awareness around that as well. And we saw that start with environmentalism. He mentioned the kind of weaponization of environmental laws in California that Governor Newsom in California just, just knocked back and hopefully that'll happen with this as well. But before we go, I want to talk more about LTECH in a moment. But we also talk. I also want to talk about middle income workers and the need for supply and, and benefits. On that. You guys read a really interesting paper that got my attention that proposes a renter tax credit specifically for essential workers. And I thought it was really interesting because I see on social media all these conspiracy theories that the renters and rental housing investors get all these magical tax Benefits, but in reality, homeowners have far greater tax benefits than renters. And so talk to us about how would this proposal, how would it level the playing field? And I guess secondly to do any chance that we can see this past.
- [38:59]
B
In D.C. well, thanks for the question, Jay.
- [39:02]
C
Yeah, I worked with Ron in his old foundation. I helped him write a paper called Money as Policy. And we looked at the subsidy streams for homeowners and subsidy streams for rental. And the homeownership subsidy was much higher than the subsidy on the rental side. And of course that was largely due to the mortgage interest deduction, which I believe at the time we wrote the paper was somewhere around 70 million, 70 billion or $80 billion a year in subsidy for the mortgage interest deduction. But that, of course, has been reduced dramatically with the increase in the standard deduction. Fewer and fewer people are itemizing on their tax returns, so fewer people are taking, availing themselves of the mortgage interest deduction. But on the rental side, yeah, I mean, the rental people who rent homes are large, are lower income generally on average than those who purchase homes, which makes sense because of the down payment and other requirements of homeownership. So subsidies should recognize, subsidies at the federal government should recognize that fact. We decided to develop a, something called a renters tax credit for essential workers. Now there's the idea of a tax credit, a renter's tax credit has been around for a while and it's largely coming from the left, to be totally honest, from organizations that are sort of left of center and they're, and they are sort of targeted at the household level and they're broad based, very expensive. So we decided let's come up with a renter's tax credit that let's, let's put some parameters around it to see if we can sell the concept. And the concept is it would, it would be a pilot program for four years, $500 million. It would, the tax credit would go to the property owner, the landlord. It could be either a single family rental or multifamily rental. And it would go to support households making 80% or less of area median income who have at least one essential worker. An essential worker could be a teacher, a firefighter, a policeman, a nurse, emt. And we want those people living in our communities and not having to travel, you know, very far to get affordable housing. So that was the, that was the concept. You know, the rents would be capped. The subsidy would be the difference between 30% of the renter's income and the fair market rent in that community. So this 500 million over four years, it, we estimate it would help about 53,000 households. And we, let's, let's do it as a pilot program, see if it works, see if it is administratively feasible, see if it would be competitive. So only a few states would have the opportunity to do it because they would compete for the opportunity. So we work at the Bipartisan Policy center, we have a government relations wing called BPC Action and they are shopping it to members in Congress to see if we can get it, get it introduced as, as legislation. And we've gotten some Republican interest in it in the past. You know, the renter tax credit has been sort of supported on the Democratic side. So we're, we haven't gotten any, we haven't, the legislation hasn't been introduced. I think the one big beautiful bill, all the tax provisions of that, that kind of consumed all the air around tax policy. So for, so we're working on it. We're working on trying to get somebody to a bipartisan pair in both the Senate and the House to introduce this concept, this legislation.
- [43:15]
A
Yeah, it was interesting idea. I mean you mentioned some of the left wing groups like I think from an industry standpoint too, what's interesting is that it's not like a voucher where you have a lot of red tape around it. It's a tax credit. And also too, I think any property manager, I mean these are, these are the type of careers talking about the essential workers. These are good stable jobs. They're jobs that have people been well screened to work in those roles as a teacher, a police officer, et cetera. And that's, those are the type people you want living and you want, they want, you want those people to be your residents. So I think this could be a win. Win.
- [43:51]
C
Absolutely. And as you point pointed out the beginning of the question, you know, a lot of people in the middle income, moderate income, middle income are really struggling with housing affordability and rental affordability in certain markets. So it's aimed at helping those, helping those families. And you want these, it's good that these families are in your community and don't have to travel such distances to, to get to the school where they work or the firehouse or the police department. You want them to be, you know, integrated into the community.
- [44:21]
A
Absolutely. So on a related question, think about the middle income. There's also been proposals from middle income Housing Tax Credit and other workforce housing programs. We're seeing more that's the local and state level like live local in Florida and whatnot but do you see more momentum building just more broadly for national solutions around workforce housing?
- [44:40]
C
I think there's, you know, just very broad interest. I mean the middle income housing tax credit has been around. I think the National Multi Housing Council has been a strong, strong proponent of that didn't make it into, into the one big beautiful bill act. There are other things that we support that didn't make it into like the Neighborhood Homes Investment act, which is not on the rental side, but it's like the, like lihtc, but to support the, the construction and rehab of homes for sale owner occupied homes in distressed communities. And that's got a lot of bipartisan support and that's sort of targeted at lower and moderate income families so they can get into the first rung of home ownership by getting into a starter home. So I think, yeah, so I think there's a broad recognition that yeah, there people are open minded. They, they understand. If you look at Harvard's latest state of the nation housing report on the rental section, a lot of people suffering from, of course the biggest burdens are on the lower income households, but more and more families in the middle and moderate income rungs are, you know, have, have severe or are housing cost burdens. So this recognition that we need more supply and we need more supply for workers. And there's also I think a growing recognition, Jay, that you know, having supply is, is connected to labor mobility and housing affordability. More supplies connected to labor mobility. People need to go to where the jobs are and they can only go to the jobs where the jobs are if they can afford to live in that area. And that's connected to economic growth. And in the United States, you know, we need labor mobility to have economic growth.
- [46:40]
A
Yeah. By the way, I think that's a great point because I think it's an argument for the having a middle income housing tax credit or something like it, which is a natural stair step from a low income housing tax credit renter now having a feasible way to move up to the next level and still a good quality rental.
- [46:56]
C
Right.
- [46:57]
A
All right, you mentioned the one big beautiful bill a couple of times. So I want to just get your take on that. Michael Novogradac was on the podcast recently. He called it the most impactful housing legislation at least 25 years. He actually kind of surprised me. I didn't, I wasn't expecting him to say that. So I'm just curious, do you agree with them? And if not, how would you grade it?
- [47:16]
C
Well, I, I graded as very good. I mean I came From Catholic school. So it was excellent. Very good, good, you know, back in the day. So I, I give it a. Very good. I mean it, it. What has been really remarkable is that the low income housing tax credit has tremendous bipartisan support.
- [47:36]
B
Yes.
- [47:37]
C
In Congress. So there was a bill called the Affordable Housing Credit Improvement act, which was the big bill that had over 250 co sponsors, Republicans and Democrats, and that had a lot. Though pieces of that were put into the One Big Beautiful bill, meaning a 12% increase in the support for the 9% credit and making it easier to utilize the 4% credit by reducing the private activity bond threshold. I know this is a geeky audience, so I can say this stuff, but rental housing nerds. Yeah. So they, I mean, Novogradac estimates that that would create about 1.2 million new affordable rental homes over the next 10 years, which is great. Which is, you know, really wonderful and really, really important. So I view that as act one. And then, you know, there's something called the Road to Housing act, which is reported out of the Senate Banking Committee earlier this year, last month, and that that would be another good piece to add as an Act 2 to this play that we are. And then I think combining both of them would be really, really, really positive. Maybe move a very good to excellent.
- [48:58]
A
Yeah.
- [48:59]
B
All right.
- [48:59]
A
But before we go to the Road to Housing Act, I want to ask you one other question about lihtc. I'll ask you the exact same question I asked novogradac, which is we, and I know this topic you've written about as well. We have a lot of tax credit housing LIHTC that's reaching their 30 year windows, expiring tax credits. A lot of concern, rightfully so, about preservation of affordable housing. The point that I don't think it's discussed enough is the preservation of the physical quality of these buildings. Because oftentimes investors are demonized for buying these properties. They invest capital to modernize them, upgrade them, and then they rent them out at market rate. Because honestly, I think that's more doable for properties that need this renovation work than it is to get another tax credit for it.
- [49:40]
B
A lot of times, unfortunately.
- [49:41]
A
So how do we expand the conversation around not just preserving affordability requirements, but preserving the integrity of these buildings and really, how do we do both, particularly when the priority seems to go on.
- [49:53]
B
To new construction versus rehabilitation?
- [49:57]
C
Well, I mean, point number one, preservation is critical. I mean, at the Terwilliger center, we view the housing affordability issue through three lenses. One, the need for more supply, which is where a lot of the bipartisanship is to the need to preserve the existing stock of affordable homes and three, the need to have demand side supports for lower income families. And we're strong supporters of the housing choice voucher program, but think it could be improved to make it to encourage more landlords and property owners to participate in the program to ease some of the administrative burdens around that. But back to preservation. You're right. Your second point you make, I mean it's really true. The LIHTC properties, about 500,000 LIHTC units, will reach their 30 year extended affordability period, I think by 2029. So this is a really an important issue. So we're supporters of legislation that was introduced in the last Congress and we're trying to get it introduced this year that would provide investors or properties can access additional credits for rehab if there, if there's a 50 year affordability commitment made at, at the outset and after, at year 15, there's, there's preferential access to getting more credits to rehab the property. So there was legislation introduced to do that. And we think that's a good, good idea.
- [51:37]
A
That's a great idea. Yeah. Having access to capital, keep those buildings in good shape, I think prevents an issue where you, you know, we see an issue like in New York where these rent stabilized units are essentially time capsules and there's no capital to invest in them. So you, you got to have both, you got to preserve the affordability and the physical integrity of these buildings to work.
- [51:56]
C
Absolutely, absolutely. Great point.
- [51:59]
A
All right, so you mentioned the road to housing a couple of times. Let's get to that. I'm sure people have seen this headline or seen, you know, groups like yours put out some commentaries about it, but this one is getting a lot of attention among housing advocates, yimby groups, there's a lot in that. But give us the one or two, one or two, three needle movers in this bill that really stand out to you.
- [52:20]
C
Well, I mean, there are a couple there. First of all, I'm going to use a baseball analogy on this. I mean, I don't think There are about 27 provisions, bipartisan provisions in the bill. I don't think anyone is a Shohei Ohtani or an Aaron Judge, but there are a lot of like 260, 270 hitters. Each of those provisions that, you know, collectively make a really strong team.
- [52:43]
A
I like that.
- [52:45]
C
So that's how I view it. I mean there's one provision, there's like a requirement for manufactured homes to be built on a permanent chassis when in fact many home manufactured homes are brought to their location and put on a permanent foundation. So this chassis requirement is sort of outdated. So removing, there is a provision that would remove, you know, that requirement and that could reduce the cost of a manufactured home by 5 to $10,000 and you know, put more of that. It's an afford, you know, very essential, affordable type of affordable housing, get more manufactured housing out. So that's. That I think is useful. There is, there's a $200 million authorization for an innovation fund that states could and localities could compete for if they adopt pro housing pro density policies. And they could use this money for a lot of very flexible purposes for, you know, building water sewerage infrastructure, you know, very flexible. But they have to adopt pro housing policies. There's tying you mentioned at the outset of the up the podcast, you know, tying federal funds to, to access to federal funds to adopt these certain policies. This is provision supported by John Kennedy of Louisiana and Elizabeth Warren of, of, of, of of Massachusetts. Two very different people tying CDBG Community Development Block Grant funds for states and localities adopting more pro housing policy. So there's a lot in there. There's something called the big Choice in Affordable Housing Act. Elements of that made it into the bill. So this, so this is the idea here is to encourage more landlords to participate in the housing choice voucher program. And one of the big things that landlords have object to is the administrative complexity and the inspection requirements. So it would say if you've been inspected under another federal program over the past year, you don't have to be reinspected for the housing choice voucher program. Also says you can be pre inspected because you know, landlords want to, if they want to participate, they don't want to wait five, six weeks because that's rent. They have mortgages too. Right.
- [55:17]
A
And that's not good for the renter.
- [55:18]
B
Either, by the way.
- [55:19]
A
They're just waiting.
- [55:20]
C
Yeah. So I mean, so these are some of the provisions in the bill. So I think, you know, when you look at the LIHTC expansion in one big beautiful bill act, this Road to Housing act, it seems like housing is having its moment in Congress. And I read today, I don't know, a news story, I think it was in Politico saying there might be an effort to put the road to housing into the National Defense Authorization act, which is a must pass bill.
- [55:51]
A
Wow.
- [55:52]
C
That, that Congress needs to pass. I don't know whether that's true, but that's a story that I read this morning.
- [55:58]
B
Very interesting.
- [55:59]
A
Yeah. And just as a quick aside on the housing vouchers, like that's the other thing. It's kind of like the prevailing wages where I think the, the narrative around it has gotten so far from reality. It's, it's, it oftentimes like the, the cynics will make it about the people as opposed to the process. You know, I mean like the critics of the landlords, like, and you talk to, I talk to property managers all the time. I say, look like I don't have a problem with the renters. I got a problem with the process that ultimately hurts my business with unpaid rent in this long and red process of red tape.
- [56:27]
C
Right, right. So this is what this bill aims to try to alleviate or get at in some fashion is to get rid of the red tape. And yeah, I mean that's a guaranteed income stream. You know, every month you get the check. So I think landlords, many landlords would want to access it.
- [56:45]
A
Absolutely. Yeah. Just need to be done.
- [56:49]
B
Right.
- [56:49]
A
Well. So, okay, so if I could summarize what you said here about the, the road to housing. This is like the small ball baseball where we're going to win by singles, high on base percentage, walk, stolen bases, sac flies.
- [57:00]
C
Well, I think it's like the Milwaukee Brewers. You know, you look at their team, you know, they got the best record in baseball, but they don't have any real, you know, maybe one guy, Chris Yellich, but they don't have any big standout stars. But they're all, all moving in the same direction, all contributing. So I think that's how I view the road to housing is all these, you know, no, no superstar provision in the bill, but all these really strong players in the bill working together, making a really, making a, a strong effort.
- [57:29]
A
I got yell at my fantasy team. Glad he's having a bounce back year this year.
- [57:34]
C
He's a great player.
- [57:35]
A
He is. He's fun to watch. Before we, before we wrap this up, any other top priorities for housing policy that y' all are working on? We have not talked about yet.
- [57:45]
C
Well, you know, President Trump has tweeted out on or truth socialed. Is that a verb? I'm going to make it a verb that he thinks Fannie and Freddie should go public. So, you know, BPC has a strong, has a long record of being involved in the housing finance reform, GSE reform space. So we're going to have an event later this month to look at what questions need to be answered in the event of a GSE exit from their 17 year conservatorship. And of course one thing that we always remind people is that this is, the GSEs are very important for multifamily housing. They help finance multifamily housing. So this is an important issue. So that's something that we, we've, we have a great advisory committee with a lot of expertise in this area. So we're going to really ramp up our efforts on that. And we're also trying to make, you know, it looks like the Fed's going to reduce rates in later this month. I don't know, but I'm reading the tea leaves right, but the impact of the national debt on housing is an issue we always raise. We have a 37 trillion plus national debt. @ some point investors are going to require, you know, higher interest rates to help finance that debt. And that's going to have a very negative impact on housing affordability, mortgage rates, construction costs. And it also, you know, crowds out. We pay, we pay as much on our interest servicing our interest as we pay on defense as we pay on Medicare. And so the more that the interest costs crowd out other needs, that's less, less funding available for important housing affordability programs.
- [59:43]
B
Yeah.
- [59:44]
A
Well, before I let you go, I would say one comment about the GSE reform that there's a lot of rightful concern around the cost of debt. But I think there's one advantage that doesn't get talked about enough in a privatization event, which is this. We saw in the last administration an effort to install national rent control through the GSEs. So basically as a, as a, as a contingent to getting the Fannie and Freddie debt, you agree to rent caps. I think the politicalization of the GSEs for apartment owners is a great risk that doesn't get discussed enough depending on, you know, who future of presidents and their priorities.
- [60:24]
C
Well, that'll be apps. That's a great point, Jay. I mean that will have to be a question answered, you know, in a post conservatorship environment. What about all those things that were put in place during conservatorship? What happens to that? Are they still in place? Do they go away? So that's a, that's a great place. And I could see, you know, something we talked about an executive order, I could see this executive order tying that the President may or may not issue, I don't know. But we're reading about in the press tying, you know, rent control policies, tenant protection policies, trying to get at those issues and saying, you know, you don't get funds if you have those policies in place. I'm speculating, but that might be a possibility.
- [61:14]
B
I agree.
- [61:15]
A
Well, Dennis, I'll let you go. But thank you so much for your time. It was great to pick your brain and appreciate all you're doing in D.C. to support the very important cause of.
- [61:24]
B
Housing in our country.
- [61:26]
C
Well, Jay, thanks very much. And it's great to spend some time with you. Have a great day.
- [61:30]
A
You as well.
- [61:40]
C
Foreign.
- [61:52]
A
And that's a wrap on episode.
- [61:54]
B
Number 51, recorded here in our nation's capital, Washington, D.C. big thank you to Dennis for being our guest today. Thank you to Funnel to JPI and to Madera for your sponsorship. And thank you to all of you for spending part of your day with us. We'll see you next week.