One of the most comprehensive housing laws in decades has just become law. But if you expect house prices to drop as a result, it may be a long time coming.
In a rare display of bipartisanship, lawmakers in both chambers overwhelmingly approved the 21st Century ROAD to Housing Act in late June. President Donald Trump abruptly canceled the signing ceremony on June 24, but under a clause, the bill automatically became law at midnight on Saturday.
This landmark legislation was years in the making and incorporates input from mortgage lenders, home builders, housing advocates, real estate appraisers and others. The goal? Creating a piece of housing legislation to increase the supply of housing and, in turn, improve affordability.
Housing experts are almost unanimous in their support for the 21st Century ROAD to Housing Act. Among the most talked about are those that guide the rules and regulations for building houses and promoting housing development. This is important because adding more homes for sale has long been identified as the main way the market can lower home prices.
But building homes and increasing supply still takes time, and potential buyers shouldn’t expect a quick boom in buying.
Jeremy Ray Davis, president of mortgage at Southern Bancorp, a community development financial institution, says the law is designed to address the root causes of the current roadblocks. You shouldn’t have cut prices so quickly.
“That’s important because we didn’t get to today’s affordability challenges overnight, and we’re not going to solve them overnight,” Davis said. “In most markets, I view this as a multi-year affordability strategy rather than a short-term solution.”
While much of the legislation focuses on improving the provision of basic services over time, it also addresses another important part of the housing crisis: providing underserved communities with access to housing and financing options.
How the ROAD to Housing Act affects affordability
The affordability crisis has had a devastating effect on low- to moderate-income families and first-time buyers. With no equity to rely on for a down payment or income high enough to cover the current median home price of $403,000, many of these homes have been taken off the market.
Tia Boatman Patterson, president and CEO of the California Community Reinvestment Corporation, points to provisions in the bill that allow and promote modular and prefabricated homes, which are energy efficient and can be built quickly and economically on average. (Think: houses that were originally built in a factory and assembled on site and homes that can be presented in various locations.)
Promoting alternative housing options can increase the supply of housing quickly and at a lower price point than conventional housing.
“We have been building houses in the same way for more than 200 years,” he said. “Bringing modernization and innovation to that will help a lot.”
The ROAD to Housing Act’s elimination of the chassis requirement, in particular, would make manufactured housing more affordable. Since 1974, these homes have been required to have a chassis, a feature intended to provide stability when the home is moved.
This requirement means that lenders view these homes as personal property rather than real estate. Manufactured homes cannot be financed with traditional mortgages; they must be financed with a chattel or personal loan, or some other form of financing, usually at a higher interest rate than a home loan.
Eliminating the chassis requirement also helps improve affordability by lowering the price of a manufactured home by $5,000 to $10,000.
Other provisions in the ROAD to Housing Act address small dollar loans, generally defined as loans of $70,000 or less. The law authorizes the Department of Housing and Urban Development to establish a pilot program that expands access to FHA-guaranteed loans to loans up to $100,000 – the price range most low-income families want.
The ROAD Act also requires the Consumer Financial Protection Bureau to review and revise the fee structure of these microloans and change any rules that increase costs and discourage lenders from offering them. According to Vishal Garg, CEO of mortgage loan Better, expanding and reviewing these small loans is important, as many lenders choose not to get them because of their low profitability.
“The good thing about this bill is that it asks regulators to review the rules that make those loans uneconomic,” Garg said. “That’s important, because many buyers at the lower end of the market are locked out by these figures, not by credit.”
