2013 Legislative Issues-1

7/28/2019 2013 Legislative Issues-1

1/10

2013 | NAHB

LEGISLATIVECONFERENCE


2/10

HousingOutlook

HOUSING BEGAN A SUSTAINED RECOVERY IN 2012

that has formed a solid basis for continued modest

growth in the face of several head winds that will

keep the industry from full take off. Housing starts in 2012

were 28 percent better than 2011 and early 2013 activity is

following a similar pace. As a result of the housing pickup,

construction jobs have increased at a much faster pace

than overall employment and the housing component of

overall economic activity is advancing at four or ve times

the pace of the economy.

Economic growth will pause in 2013 as the effects of

higher taxes and lower government spending spreads

across the economy. NAHB forecasts a 1.9 percent GDP

growth in 2013 followed by a more robust 2.6 percent

in 2014 as the scal drag effects are absorbed and the

underlying private economy recovers. Housing will suffer

less than other sectors from the slowdown because pentup demand will amplify demand.

Household formations dropped signicantly during the

recession from an average of 1.4 million net additions

each year to 500,000 during the recession. Formations

picked up beginning in 2011 but remain below underlying

demographic expectations. NAHB estimates a shortfall

of 2 million households yet to form from the underlying

population that has up to this point remained in parentshomes. As the economy and job formations grow, normal

life cycle trends will spawn these pent up households.

Other positive housing inuences include extremely low

mortgage rates and rising home prices. Mortgage rates are

expected to remain low, although some increase will begin

as the economy expands in 2014 and more sectors demand

capital. Home price increases are a double-edged sword

3

2 0 1 3 N A H B L E G I S L A T I V E C O N F E R E N C E


3/10

but overall, have had a benecial effect. While higher prices

reduce affordability for rst time home buyers, increasing

home prices provide more equity to current home owners,

which is especially important for home owners with little

or negative equity. Consistently rising prices over the last

year provide condence to home buyers that they will not

lose money if they purchase. That effect has been very

important in the recent rising demand and will continue tobe true over the next year. NAHB forecasts home prices

will rise 7.4 percent in 2013 and 4.5 percent in 2014 as

supply begins to catch up with demand.

Even with these advantages, housing production remains

at about 60 percent of normal output. Housing starts in

the rst quarter of 2013 were 969,000 but should be 1.7

million if underlying demographic demand were back to

normal. The postponed and slower-than-normal recoverycan be blamed on a whole series of head winds. Leading

the reasons for limited growth is tight credit for both the

builder and buyer. Partly due to the unknown and expansive

regulations affecting mortgage originators and investors,

credit standards are much tighter than they were during

more normal periods in the early 2000s. Current lend-

ing thresholds reduce the number of eligible borrowers,

which is already reduced by current home owners withlittle or no equity.

Builders borrow from community banks in the markets

where they build. But national regulators and local bank

examiners have kept a lid on lending to residential real estate

so builders have not been able to expand their inventory.

The number of new homes for sale has remained at historic

lows for over a year as builders struggle to get sufcient

capital to buy land, install infrastructure and build homes.

Other sectors of the home building industry are also

struggling to rebuild their supply chain as the industry

begins to recover. Some building material prices have

skyrocketed in the past year as capacity for items such

as lumber, wood panels and wallboard are re-established.

Labor costs are likely to increase as construction workers

left the industry when housing starts dropped 80 percent

from peak to trough.

The net effect of positive demographic, interest rate

and home price tail winds against the head winds of credit

availability and rising prices and/or scarcity for materials,

workers and lots will allow housing starts to increase to

1 million in 2013 and 1.2 million in 2014. Full recovery at

1.7 million starts is several years away as the economyand jobs grow back to normal and the head winds calm.

NAHB Economics Contact

Dr. David Crowe

Chief Economist

(800) 368-5242, ext. 8383 or

(202) 266-8383

Email: [email protected]

4 5



4/10

Tax Reform

CONGRESS HAS BEGUN DISCUSSING POSSIBLE

changes to the tax code. In doing so, it is essential

that Congress take the right approach to foster eco-

nomic growth. It is critical for future economic prosperitythat Congress not harm job creation and recovery in the

construction industry.

Mortgage Interest Deduction

The mortgage interest deduction (MID) has been part

of the tax code since its inception in 1913 and is the

cornerstone of American housing policy. Home owners

may deduct interest from up to $1 million of acquisition

mortgage debt and up to $100,000 of home equity loan

debt. These amounts were set in 1987 and have not been

adjusted for ination.

There are many misperceptions regarding this deduc-

tion, including who benets. In reality, the deduction is a

middle-class tax break and is particularly benecial for

younger households and larger families. Two-thirds of the

benets of the mortgage interest deduction are claimed

by those earning less than $200,000. Yet these same

taxpayers pay only 40 percent of all income taxes, meaning

these deductions make the tax code more progressive

and fair. As a share of household income, the deduction

primarily benets those aged 18 to 35, as well as larger

families. The vast majority of home owners benet from

the mortgage interest deduction; in any given year, 70%

of home owners with a mortgage will claim the deduction.

Second Homes

Perhaps the least understood component of the mortgage

interest deduction is the allowance to deduct interest on

a second home. In fact, many home owners have owned

a second home without realizing it. For example, when

a home owner sells one home and purchases another,

effectively owning two separate principal residences in a

given tax year. Further, the second home MID rules allow

up to 24 months of construction loan interest on a newly-

constructed home to be claimed while the family resides

in their existing principal residence.

Second homes may conjure up images of expensive

beach homes (although such homes are more likely to be

rented out, in which case the owner does not claim the

mortgage interest deduction, or are owned free-and-clear),

but second homeownership is much more diverse. Everystate, except for Connecticut, has at least one county with

10 percent or more of its housing stock as second homes.

Low Income Housing Tax Credit

The tax code also contains numerous provisions to support

rental housing. One of the most uniqueand effective

provisions is the Low Income Housing Tax Credit (LIHTC).

Created as part of the Tax Reform Act of 1986, the LIHTC

promotes public-private partnerships to produce afford-

able rental housing. The LIHTC allows private equity to be

raised at a lower cost, which makes it possible to operate

these projects successfully with below-market rents. In

general, the LIHTC serves households earning 60 percent

or less of the area median income. Because compliance is

monitored by the state housing nance agencies as well

6 7



5/10

as the investors, LIHTC projects have a foreclosure rate

that is one-third of other multifamily properties.

The LIHTC is currently producing approximately 75,000

new apartment homes annually, and since its inception,

the LIHTC has produced more than 2 million affordable

rental units. Despite its success, this is not sufcient to

replace the number of affordable apartments lost each year.

Even in this tough economic climate, the LIHTC cre-

ates 95,000 new full time jobs per year across all U.S.

industriesgenerating $2 billion in federal tax revenue.

No other housing program has been as successful as the

LIHTC in producing safe, quality, affordable rental housing.

Solutions

Recently, several scal commissions have suggested re-

ducing or eliminating the mortgage interest deduction;

the capital gains exclusion; the Low Income Housing Tax

Credit; and the deduction of property taxes, amongst oth-

ers. These proposed tax increases would further depress

home prices; put countless more home owners underwater;

and trigger a new wave of foreclosures. Eliminating or

scaling back these vital housing incentives will also shrink

the local tax base of many communities, causing already

cash-strapped state and local governments to further cut

jobs and essential services. Raising taxes on home owners

and homebuilders is just not sound public policy.

R E COMMEND A T I O N S

Oppose any changes to the tax code that would

increase taxes on home owners, renters, or home

builders;

Co-sponsor H. Con. Res. 4, introduced by

Representative Gary Miller, expressing the senseof Congress that the mortgage interest deduction

should not be further restricted.

NAHB Government Affairs Contact

JP Delmore

Assistant Vice President, Government Affairs

(800) 368-5242, Ext. 8412 or (202) 266-8412


ImmigrationReform

T

HE IMMIGRATION DEBATE HAS HEATED UP AGAIN

in the 113th Congress, with both the House andSenate set to consider legislation in the second half

of the year. As lawmakers work to craft compromise legisla-

tion, these proposed changes will have a direct impact on

businesses, even if they do not use immigrant labor. It is

therefore vitally important that Congress understand the

need for a fair and workable employer verication system

and a set of visa programs that appropriately reects the

needs of the construction industry.

Employment Verication

Congress is considering a nationwide expansion of the

electronic employment verication system (E-Verify) to

ensurethat employersonly hire individuals authorized to

work in the United States. NAHB believes that the system

must be fair, efcient, and not impose signicant burdens

on employers. A workable system will:1.Maintain current law, holding every U.S. employer ac-

countable only for the identity and work authorization

status of their direct employees. Congress should not

require employers to verify someone elses workers

such as a subcontractors employeesas this is both

unfair and impracticable.

2.Maintain the current liability standards to ensure employersunderstand their level of compliance. Employers who

knowingly hire undocumented workers will continue

to be held accountable.

3.Make sure that any compulsory federal E-Verify program

contains a robust safe harbor for employers so that

those who use the system in good faith will not be held

liable for errors in the E-Verify system.

8 9



6/10

4. Include a strong preemption clause, preventing state

and local governments from creating their own versions

of verication requirements for employers. This is es-

sential for any business that operates in multiple states.

5.Allow employers to begin the E-Verify process when

a worker accepts a position, rather than be required

to wait until after their start date.

6. Permit the system to provide telephone access as well

as Internet access, which will make the system more

workable for small employers.

Labor Shortages

The home building industry, with the contribution of a

substantial immigrant workforce, plays a critical role in

sustaining the national economy and meeting the nations

housing needs. Today, foreign-born workers account for

22 percent of the construction labor force nationally.

The inow of foreign-born labor into construction is cyclical

and coincides with overall housing activity. Their share was

rising rapidly during the housing boom years when labor

shortages were widespread and serious. However, even

during the severe housing downturn and a period of high

unemployment, the construction labor force continued to

recruit new immigrants to replace native and foreign-born

workers leaving the industry.

The improvement in housing markets over the last year

has been a welcome change for the economy. NAHB is

anticipating total housing starts of 1 million this year and

1.2 million in 2014 as the market continues its gradual

rebound. However, this turnaround presents new labor

challenges for the construction industry.The January and March 2013 NAHB/Wells Fargo

Housing Market Index (HMI) surveys, which gauge sales

conditions from builders across the county, indicate that

labor shortages are quickly rising on home builders list of

most signicant problems. Forty-six percent of the builders

surveyed experienced delays in completing projects on

time. Fifteen percent of respondents had to turn down

some projects, and nine percent lost or cancelled sales

as a result of recent labor shortages. Trades with a high

concentration of immigrant workers also tend to have

more vacancies and labor shortages.

NAHB strongly believes that the nation should imple-

ment a new market-based visa system that would allow

more immigrants to legally enter the construction workforce

each year. Despite efforts to recruit and train Americanworkers, the housing industry faces a very real impediment

to full recovery if work is delayed or even cancelled due to

worker shortages. A new, workable visa program would

complement the industrys skills training efforts within the

nations borders and ll the labor gaps needed to meet

the nations housing needs.


Support comprehensive immigration reform that

includes a fair and workable employer verication

system and a market-based visa program that

allows the residential construction industry to fully

participate in the program.

Oppose any attempt to require home builders

to verify the work authorization status of their

subcontractors or subcontractors workers. As

with current law, employers who knowingly use

subcontract labor that violates immigration laws

will continue to be held accountable.


Suzanne Beall

Federal Legislative Director(800) 368-5242, Ext. 8407 or

(202) 266-8407


10 11



7/10

HousingFinanceReform

Background

TH E H OU S I N G GOV E R N M E N T SPON SOR E D

enterprises (GSEs)Fannie Mae, Freddie Mac and

the Federal Home Loan Banks (FHLBanks)have

been, and remain, critical components of the U.S. hous-

ing nance system. They were created by Congress tosupport mortgage market liquidity and help address af-

fordable housing needs.

The GSEs have operated with implicit government

backing that allows them to raise funds at favorable

rates, which ultimately benets mortgage borrowers.

The housing GSE system functioned well for decades,

but the past few years have seen unprecedented turmoil.

Freddie Mac and Fannie Mae were found to have serious

accounting irregularities that required them to be placed

under government conservatorship and receive direct

federal support. The FHLBanks have not experienced

these difculties and continue to operate outside of direct

government control.

The regulatory system for the GSEs underwent a complete

overhaul during this period, with all GSEs now under the

oversight of a single regulator, the Federal Housing Finance

Agency (FHFA). As the conservator for Fannie Mae and

Freddie Mac, FHFA is trying to balance the signicant role

that Fannie and Freddie have played during the housing

downturn by supporting mortgage markets and mitigating

mortgage foreclosures, while reducing taxpayer losses

and minimizing future risk exposure.

One thing is clear: the status quo cannot be maintained.

Serious policy discussions are underway regarding the

future of Fannie Mae and Freddie Mac following the cur-

rent, still-indenite conservatorship period, and what, if

anything, should change in the structure and operation

of the FHLBanks. A key consideration is the transition

from the current structure to a future arrangement with-

out undermining ongoing nancial stabilization efforts and

disrupting the operation of the housing nance system.

Solutions

NAHB believes that Fannie Mae and Freddie Mac should

not be converted to government agencies, nor should their

functions be completely turned over to the private market.

While major structural and operational changes are needed,

NAHB believes it is crucial for the federal government to

continue to provide a backstop for the housing nancesystem to ensure a reliable and adequate ow of affordable

housing credit in all economic and nancial conditions.

The need for government support is underscored by the

current state of the housing nance system, where Fannie

Mae, Freddie Mac, the FHLBanks, the Federal Housing

Administration and Ginnie Mae are the only conduits for

residential mortgage credit. The federal backstop must be

a permanent xture in order to ensure a consistent supply

of mortgage liquidity, as well as allow for rapid and effective

responses to market dislocations and crises.

NAHB has provided a plan to Congress where the

federal government would only be called upon when the

capital and self-funded insurance resources of newly cre-

ated private secondary market entities are exhausted.

NAHB supports comprehensive GSE reform legislation thatprotects the American taxpayer while ensuring a safe and

sound means of providing a reliable ow of housing credit.

12 13



8/10


Pass comprehensive GSE reform legislation that

ensures the federal government continues to

provide a backstop for a reliable and adequate

ow of affordable housing credit in all economic

and nancial conditions.

I While NAHB agrees that private capital mustbe the dominant source of mortgage credit, the

future housing nance system cannot be left

entirely to the private sector.

I The historical track record clearly shows thatthe private sector is not capable of providing

a consistent and adequate supply of housing

credit without a government backstop.

I Fannie Mae and Freddie Mac should begradually phased into a private-sector-oriented

system, where the federal governments

backing is explicit but its exposure is limited.

I Federal support should be limited tocatastrophic situations where carefully

calibrated levels of private capital and

insurance reserves are depleted before anytaxpayer funds are employed to shore up the

mortgage market.

I NAHB believes federal support is particularlyimportant in continuing the availability of the

30-yearxed-rate mortgage, which has been a

staple of the U.S. housing nance system since

the 1930s.


Scott C. Meyer


(800) 368-5242, Ext. 8144 or

(202) 266-8144


Addressingthe HousingProduction

Credit Crisis

Background

T

HE HOME BUILDING INDUSTRY CONTINUES TO

experience a signicant adverse shift in terms andavailability on land acquisition, land development

and home construction (AD&C) loans and builders with

outstanding loans are facing mounting challenges. Lend-

ers are refusing to extend new AD&C credit or to modify

outstanding AD&C loans in order to provide more time to

complete projects and pay off loans. Lenders themselves

often cite regulatory requirements or examiner pressure on

banks to shrink their AD&C loan portfolios as reasons fortheir actions. While federal bank regulators maintain that

they are not encouraging institutions to stop making loans

or to indiscriminately liquidate outstanding loans, reports

from NAHB members in a number of different geographies

suggest that bank examiners in the eld have adopted a

signicantly more aggressive posture.

As a result of this regulatory pressure, the home building

industry is having extreme difculty in obtaining credit for

viable projects. Builders with outstanding construction and

development loans are experiencing intense pressure as

the result of requirements for signicant additional equity,

denials on loan extensions, and demands for immediate

repayment. In short, the credit window seems to have been

slammed shut for builders all over the country.

14 15



9/10

Solutions

NAHB has presented banking regulators with specic in-

stances of credit restrictions, provided data showing no

difference in credit access across market conditions; and

requested specic changes to current regulatory guidance.

To date, these efforts have not produced any tangible

results. With the spigot for housing production loans cut

off, it is clear that congressional action is needed to helpopen the ow of credit to home builders. Without such

action, there can be no housing recovery, which has major

implications for our nations ability to recover from the

current economic downturn.

With the introduction of legislation to address the regu-

latory barriers to construction lending, the prole of this

lending crisis has been raised signicantly in Congress. In

fact, in the last Congress, NAHB supported legislation toaddress this issue that ultimately garnered the support of

113 bipartisan members in the House of Representatives

and 8 Senators. The legislation has been reintroduced once

again to continue the momentum gained during the last

congressional session. Moving forward, NAHB will push

once again for the passage of the Home Construction

Lending Regulatory Improvement Act, H.R. 1255, intro-

duced by Representative Gary Miller (R-CA) and CarolynMcCarthy (D-NY), and S. 1002, the Home Building Lending

Improvement Act of 2013, introduced by Senator Robert

Menendez (D-NJ) and Johnny Isakson (R-GA).

The momentum generated by these two bills, is now

the basis for new bipartisan legislation before Congress to

tackle the issue of overly restrictive bank examiner regula-

tion. H.R. 1553, the Financial Institutions Examination Fair-

ness and Reform Actintroduced by Financial Institutions

Subcommittee Chairman Shelly Moore Capito (R-WV) and

Representative Carolyn Maloney (D-NY), as well as S. 727

introduced in the Senate by Banking Committee members

Jerry Moran (R-KS) and Joe Manchin (D-WV), would provide

new standards for bank examinations. Of particular note

to the home building industry, such new standards would

specify that a commercial loan (including AD&C loans) cannot

be placed in nonaccrual status solely because the collateral

has deteriorated in value. Additionally, the legislation would

clarify that a new appraisal is not required on a commercial

loan unless an advance of new funds is involved. NAHB

strongly supports H.R. 1553 and S. 727 and as this legislation

moves forward in Congress, we will advocate for additional

elements of our credit crisis reform legislative agenda to beincorporated to strengthen the overall bill.


Members of the House of Representatives:

Cosponsor H.R. 1255, theHome Construction

Lending Regulatory Improvement Act, introduced

by Representatives Gary Miller of CA and Carolyn

McCarthy of NY.

I H.R. 1255 directs the banking regulators toissue new guidance in three key areas:

1.Cease implementing a 100 percent capital

bank lending limit for AD&C loans as a hard

limit, and utilize the 100 percent capital guid-

ance as it was intended;

2.Use as-completed values when assessing

the collateral of residential AD&C loans they

intend to fund to completion and use arms

length transactions standards when assess-

ing new loans;

3.Abstain from compelling a lender to call or

curtail AD&C loans where the home builder

is current in making payments in accordancewith the loan documents.

Members of the Senate:

Cosponsor S. 1002, theHome Building Lending

Improvement Act of 2013, introduced by Senator

Robert Menendez of NJ and Johnny Isakson of

GA.

16 17



10/10

I S. 1002 directs the banking regulators to issuenew guidance in two key areas:

1.Change the 100 percent capital bank lending

threshold that triggers additional scrutiny

for construction loans to 125 percent and

clarify that if a bank exceeds that threshold,

it should not be treated as a hard cap on

further construction lending, but a multi-fac-

tor analysis of the banks portfolio and risk

management;

2.Abstain from compelling a lender to call

construction loans where the home builder

is currently making payments and provides

for a work out period before charging off a

loan.


Scott C. Meyer


(800) 368-5242, ext. 8144 or

(202) 266-8144


18


2013 Legislative Issues-1

Documents

Transcript of 2013 Legislative Issues-1