Housing Policy Comment

There is a lot of chatter in the housing world right now about what the Trump administration’s plans are with respect to housing policy, but one thing is clear - there has not been this much attention paid to housing and this much potential for favorable housing legislation and deregulation in a long time. This is the first time the President has been a lifelong real estate developer who appreciates the challenges of regulation and who is a big believer in private sector engagement. Recent reports that the Trump Administration is seeking significant cuts to the HUD workforce have engendered concern from some Democrats, but in my view, the environment for positive change will not get better than it is right now. Time is of the essence.

Given the centrality of inflation and the cost of shelter in the minds of voters in the past election, the new administration included a call to arms for reducing housing costs in its initial blizzard of executive orders. And, for for the first time in a while, there is a consensus about the central issue that keeps the cost of shelter high - inadequate housing production and lack of supply.

The causes most frequently cited for this shortage are excess regulation that impedes development at the federal and local level whether that be environmental, zoning, labor or rent control/tenant protections; the high costs of materials; a shortage of skilled residential labor; the high cost of capital in new construction; the scarcity of buildable land in certain areas; and high costs of capital in the form of elevated mortgage rates as well as rising insurance and maintenance costs for residential buyers.

So, the two fundamental questions in my mind are number one, will the Administration prioritize housing by advancing meaningful legislative and administrative reforms, and two, what can the federal government actually do about the housing affordability problem since many of the issues are local and not federal - think zoning and permitting.

A third problem relates to the extent to which policy makers will try to find spending offsets and “pay fors” as they introduce new programs. If they try to cut some existing housing programs to pay for other new ones, then things could get a bit messy. The one lesson I learned from my time in DC was that everyone hates subsidies unless they benefit from them in which case they love them. So, whenever you try to move the punch bowl and replace it with healthy carrot sticks you get a negative reaction. There are people I have spoken to who say this is not a legitimate concern since we will assume that our deficits will be covered by growth. We are currently between France and Portugal in debt to GDP ratios so it’s not as dire as some suggest (it was this high in WWII) especially since we have the biggest printing press. But the fact remains the federal government today spends as much on debt servicing costs as it does on national defense and Medicare.

Having said all that, there is a lot of energy at the trades (NMHC, NAHB, MBA, NAR) and think tanks on housing policy and I do believe there will be constructive initiatives advanced during the Trump administration.

I serve on the board of the Bipartisan Policy Center which is a think tank dedicated to helping craft bipartisan solutions to our nation’s major problems and the main area I engage in there is the Terwilliger Center for Housing Policy. If there is any doubt that bipartisanship will be important, remember that in the House of Representatives even if Elise Stefanik does not become UN Ambassador the Republicans will still only have a 218-215 majority. And remember that the incumbent party usually fairs poorly in the midterms which effectively start in the first quarter of 2026.

We have been in touch with all the trades and all the key legislators involved in housing and we believe there is an emerging consensus on a few pieces of legislation and a few policy initiatives. The common themes are increasing supply and trying to improve efficiency in housing programs.

It’s always easier to build on work that has already been done and there seems to be strong bipartisan support for the following five bills from the last Congress:

Beyond these there are a number of items in no particular order that could also gain traction:

Releasing the GSEs from their 16-year conservatorship – this is being talked about a lot and it has been viewed as a possible pay-for for other revenue losses
Extending opportunity zones beyond their expiration - especially since it was Senator Tim Scott’s baby, and he is now chair of the Senate Banking Committee
Introducing a new Workforce Housing Tax Credit modeled on LIHTC that would be targeted to support renter households earning 80-120% of AMI
Using DOT, HUD funds and Private Activity Bond (PAB) caps as a lever to incentivize local jurisdictions to adopt more flexible zoning policies
Eliminating the PAB cap for Affordable Housing
Releasing federally owned land for housing development
Using HUD grants to help states pay for local tax abatements to encourage development and adaptive reuse
Exempting infill and/or affordable housing from NEPA review
Reforming NEPA, WOTUS, and other environmental laws to reduce excess time and expense in permitting
Exempting certain types of development employing federal financing from prevailing wage requirements
Capping hard costs for federally funded affordable housing - developers can still earn their fee but the feds won’t pay more than normal construction costs - if the state adds other requirements that lead to excess costs, then they pay for the overage

The list goes on and on, but suffice it to say there is a lot of energy out there but the window of opportunity is narrow. The key players will be the trades, think tanks and key administration officials (Scott Turner HUD, Scott Bessent Treasury, Bill Pulte FHFA (unconfirmed), potentially a to-be-named Housing Czar, Congressional leaders French Hill in the House and Tim Scott in the Senate and of course the President himself.

Now much of what I am talking about relates to the rental market rather than policy relating to single-family homeownership which remains the American Dream. There are fervent believers that homeownership is a form of forced savings subsidized by government debt and policies to support single family through both the debt markets (GNMA, FNMA, FRE) and the tax code (mortgage interest deduction, capital gains exclusion) and these policies are deeply embedded in our policy framework.

Policy ideas that affect single family for good or bad include the following: Changes to permitting and approval processes could help production in the new home building market. GSE release could raise mortgage rates due either to fee increases (small effect) or increased uncertainty among MBS investors (potentially larger effect). Proposals to introduce assumable mortgages could improve labor mobility and help improve liquidity in the existing home market over time. Proposals to improve access or to reduce the generally regressive non-mortgage costs of attaining a home (appraisal, title, mortgage insurance, rental reporting for multifamily tenants, etc.) could help make housing a bit more attainable for people of more modest means.

For what it is worth, my own view is that policies designed to achieve a certain homeownership rate are misguided and a waste of taxpayer resources. Over the past fifty years of dramatically growing federal intervention in the mortgage markets, the homeownership rate is essentially unchanged. These federal programs have not increased homeownership, rather they have increased mortgage ownership - which is now 500 percent higher - and may have helped increase the square footage of homes. In short, demand side subsidies combined with inelastic supply makes prices go up. Having said that, our subsidy for single family ownership is heavily embedded in the political process and the thirty-year mortgage funded by global MBS investors is not going anywhere.

In conclusion, there is an enormous and unprecedented amount of opportunity for housing policy reform. However, given political realities, time is short. It is incumbent upon all of us who care to be engaged in the process and take advantage of the moment.

About the Contributor:
Hugh Frater is Chairman of Vessel Technologies, Inc, a manufacturer of panelized multifamily buildings. He is a member of the Columbia Business School Board, and a member of the Columbia Real Estate Forum. Mr. Frater previously led Fannie Mae as CEO from October 2018 to April 2022 after serving on its Board of Directors. Earlier in his career, Mr. Frater was a founding partner and managing director of BlackRock, Inc. Mr. Frater holds an MBA from Columbia Business School and a bachelor’s degree from Dartmouth College.