By Keat Foong, Executive Editor
If multifamily legislative priorities can be reduced to a single issue of most importance, capital availability would fit the bill, as it appears to be the number one concern of multifamily trade groups for 2012.
Connected with this issue are a number of heavy-weight items also on the watch list this year: GSE reform, tax reform, deficit reduction legislation, Dodd-Frank regulations and the government budget. Many of these points, such as GSE reform and the government budget, impact directly or indirectly on liquidity in the multifamily financing markets.
The word “watch list” is key in 2012, because this is also an election year, and major, controversial, legislation is not expected to be introduced—those bills will have to wait until 2013. Instead, this will be the year of “laying the groundwork,” when the industry educates elected officials on matters of importance to the industry.
“There could be a flood of legislative activity in 2013, which could ease off again in 2014 in time for the mid-term elections in 2015,” says Sharon Dworkin Bell, senior staff vice president of Multifamily at the National Association of Home Builders (NAHB). “2012, like 2011, is a time for us to meet with members of Congress to make sure they understand how important these issues are to us and to the communities they represent, because once they move on legislation in 2013, they can move quickly. So, 2012 will be a year of building support.”
Educating policy makers
Topping the National Multi Housing Council’s (NMHC) legislative priority this year is housing finance reform. “That is of great importance to us,” says Cindy Chetti, senior vice president of government affairs at NMHC. “Access to capital in all markets at all times is important for the future of multifamily housing.” NMHC will be watching the GSE and finance reform debate closely, she says, though there may not be bills introduced in 2012 because it is an election year.
Chetti cites tax reform second as a legislative priority for NMHC in 2012. The tax code is still somewhat favorable to the single-family side of housing, she adds. Third on NMHC’s watch list this year comes under the broad umbrella of regulations, whether environmental, telecommunications, energy or those related to the Dodd-Frank laws, says Chetti. For example, there are more than 200 regulations due to be released as a result of Dodd-Frank statutes. The industry trade groups are still not sure what to expect from these to-be-released financial regulations over the next year or two.
On the matter of government requirements, NMHC is also keeping a close eye, for example, on green-related regulations, to try to ensure they are “incentives instead of mandates,” says Chetti. “We want to make sure the regulations are not harmful to the apartment industry and do not add undue cost without benefits—that the cost of compliance does not outweigh the benefits of the regulations,” says Chetti.
This is a year in which the priority is “to educate policy makers in Washington about the multifamily industry,” says Chetti. “We want to make sure that Congress is aware of the apartment industry and that it understands our issues in terms, for example, of access to credit and the tax structure.”
Issues of reform
The most important Capitol Hill issues for the National Apartment Association (NAA) for 2012 include housing finance reform and tax reform, says Greg Brown, vice president of government affairs at NAA. The significance of GSE reform cannot be underestimated, as it will affect the industry’s access to capital, Brown notes. And as far as tax reform, the two issues NAA is most concerned with are preserving and improving the LIHTC program, and making sure corporate and “pass through” partnerships are treated equitably in the event of changes to the tax code.
NAA has also been working with the House’s Committee on Financial Services to add improvements to the Section 8 program, and that work will be ongoing in 2012. The group is seeking, for example, to streamline aspects of the voucher program for greater effectiveness and efficiency, Brown indicates. NAA is also continually on the lookout on the energy efficiency front. “Energy issues continue to be on the front burner for Congress,” says Brown. “We will have to watch to make sure Congress is educated about how proposals will affect multifamily housing, as well as share with them the steps that our members are already taking.”
And at the state and local levels, NAA is very focused on the issue of fees and taxes. At a time when state and local government budgets are being particularly stressed, the apartment industry often ends up being the target of fees intended to raise funds to help close the budget gaps, whether these are utility fees, inspection fees or garbage collection fees, says Brown. “We have to pay close attention and educate [the local governments] on what the impact is, especially if the fees are levied more on single-family than multifamily housing.”
GSE reform, tax reform, and the federal budget also compose the top three areas of focus this year for NAHB Multifamily, says Bell. The overarching theme, agrees Bell, is the availability of capital. Of relevance under the topic of GSE reform is the future of Fannie Mae and Freddie Mac, as well as the Federal Home Loan Banks (FHLB) and the Federal Housing Administration (FHA) mortgage insurance program, she adds.
Reform could come to the FHLBs, as there is the potential that changes to Fannie and Freddie would affect the FHLBs as well. As far as the FHA programs, if the financing system incorporating Fannie and Freddie is revamped as expected, “the question becomes, what is FHA’s role? They become a part of that conversation,” she notes. Besides GSE reform, financial regulations under the Dodd-Frank laws would also have “far-reaching” effects on the availability of capital, and it is a top priority for NAHB as an issue that needs to be watched closely, suggests Bell.
The second top concern for NAHB multifamily is tax reform. Under the rubric of tax reform, of foremost consideration is the tax treatment of carried interest, as well as legislative treatment of the Low Income Housing Tax Credit (LIHTC) program. Where LIHTC is concerned, developers’ priorities are now to make certain changes to improve the program. It now seems unlikely that the program would be singled out for elimination since it composes a relatively small part of the overall cost to the government. However, “if there is a package of tax changes, the LIHTC could be swept up in it,” says Bell. For example, if the tax rate for corporations falls, their incentive to invest in LIHTCs could be impacted significantly, according to Bell.
After GSE and tax reform, third on NAHB’s legislative watch list is the federal budget. Under this topic falls the HUD budget and the federal appropriations process. The direction of deficit reform, incorporating possibly a combination of spending cuts and tax increases (or tax cuts), needs to be followed closely for its implications for housing. Efforts to cut the deficit can affect appropriations, or the extent to which the government could be involved in the secondary financing market and whether taxes would be raised.
Capital availability top of mind for IREM
For the Institute of Real Estate Management (IREM), “the availability of capital”—first mortgages, refinances and capital improvements financing—is the first issue on the list of legislative priorities for multifamily housing that Chuck Achilles, chief legislative and research officer at the Institute of Real Estate Management (IREM), zeroes in on. “We recognize that the multifamily market is fairly strong. But there are still pockets around the country where money is not available. We are very concerned about that,” he says. Greater flexibility in lending on the part of financial institutions is needed, says Achilles. As possible solutions, IREM is looking to legislation, some of which has been introduced, to make way for covered bonds and credit unions lending in the commercial sector, as well as regulations related to the extension of loan terms.
Second, says Achilles, IREM is keeping a watch this year on where the tax code may be headed. Various tax statutes are expiring. The entire tax code is important to the industry because it ultimately affects the amount of multifamily investment. “The way taxes are structured can encourage people to invest in multifamily because they see the advantages of doing so. If it is disadvantageous to them, they may decide [on] another investment vehicle,” says Achilles.
Third for IREM this year has to do with energy conservation laws, and regulations generally, in multifamily. “We support lowering operating costs of properties and tenant costs, but we are not in favor of mandatory requirements, only voluntary requirements,” says Achilles. IREM is also in favor of tax incentives to defer costs of energy conservation for building owners. Property owners have vastly different capabilities to implement the measures, and across-the-board requirements would not be appropriate, Achilles suggests.
Providing the perspective from the affordable housing side of the industry, the National Affordable Housing Management Association (NAHMA) maintains its legislative issue of priority this year is, first and foremost, funding. “We have to have a strong budget for affordable housing programs,” says, Michelle Kitchen, director of government affairs at NAHMA.
NAHMA would like to continue to see full funding to renew all Section 8, Section 202, Section 811 and Section 521 contracts, Kitchen says. In addition, the organization calls for the restoration of last year’s cuts to Section 202 and Section 811 new construction funding, as well as the return of funds to HOME and Community Development Block Grants (CDBG), which also took a big hit last year. “We would like to see cuts restored,” says Kitchen, adding that what especially needs to be recovered is the federal funding for new construction, because demand for affordable housing far outstrips supply.
NAHMA and its members expect to promote the agenda through grass root efforts. “Members of Congress need to hear about the positive work this funding is doing in their districts for their constituents,” says Kitchen. “We will have to discuss the importance of these programs. We don’t think it will be impossible, but we will have to work hard to obtain adequate funding.”
As Bell explains, whatever legislation Congress decides to move first on in the future, whether it relates to tax reform, GSE reform or deficit reduction, that item would suddenly rise up to the top of the agenda to become the issue of foremost priority for all of the trade organizations.