Biden's First 2 Years Were Big On Spending, But CRE Wants Action On Housing

Two years since being sworn into office on Jan. 20, 2021, Joe Biden has put together a string of legislative wins poised to pump billions of dollars into the U.S. economy and, at least indirectly, benefit the commercial real estate industry in the process.

That includes the Infrastructure Investment and Jobs Act, the Inflation Reduction Act and CHIPS Act, which collectively will inject trillions of dollars in federal spending into the U.S. economy through improving transportation infrastructure, funding greener affordable housing and creating new industrial facilities.

But seven months after the release of the administration's Housing Action Plan, experts say more work is needed to address housing supply issues across the country that many are now calling a crisis.

“Affordable housing is an area that really needs to rise to the top of everybody’s agenda,” said Spencer Levy, CBRE senior economic advisor. 

The Biden administration's Housing Action Plan took aim at a variety of factors slowing down the production of affordable housing around the country. Among them are proposed changes to the Low-Income Housing Tax Credit to allow for income averaging across affordable units, a new financing program for the construction of accessory dwelling units, and a proposed cash infusion for local housing authorities that could be used to create new affordable housing.

The administration also said it would find ways to incentivize changes to local zoning codes to peel back single-family zoning in some places and address the legacy of racially restrictive zoning.

Department of Housing and Urban Development Secretary Marcia Fudge on Wednesday announced a new effort to address the latter issue, introducing a new version of the Affirmatively Furthering Fair Housing rule — dispensed with by the Trump administration — that would require municipalities to create equity plans to support desegregation or face losing federal funding.

The administration's work on zoning in particular has helped improve the profile and fortunes of commercial developers looking to get more involved in building affordable housing, said Sharon Wilson Géno, president-elect of the National Multifamily Housing Council.

"This is the first time I've ever heard an administration really put forth an effort around housing supply, and that is definitely music to our members' ears," Géno said. "It is the answer to a lot of the struggles that we're seeing today."

That effort occurs after a years-long slowdown in the supply of new housing at the price point, configuration and location that residents want, Géno said. The 2010s saw single-family home starts down significantly compared to the prior decade, and Census Bureau data shows that the total number of housing units grew at half the rate from 2010 to 2020 as it did from 2000 to 2010.

"I don’t think it’s had a meaningful impact," The Peebles Corp. CEO Don Peebles said of the Biden administration’s housing efforts over the last two years. "I love Joe Biden. I’ve known him for a number of years, and I’ve always been supportive of his leadership. However, his administration isn’t addressing some of these very important issues."

Peebles said the administration needs to make up for lost time, but it isn’t acting fast enough to mitigate the impact of rapidly rising interest rates on the production of new housing.

“They’ve done nothing to expand the federal tax credit program and further resources to produce more on affordable housing, and they’ve done nothing for workforce housing when it’s the middle class who voted for him, in a large sense,” he said.

Peebles wants to see several solutions to broaden opportunities to produce units in those categories, including expanding the LIHTC program and changing the ceilings for HUD-insured mortgage programs so they are indexed to the market. 

He also wants to see tax policy shift, something that will likely require a legislative fix. In particular, Peebles said the tax rate to acquire an already-developed property, cut costs via staff reductions and sell it is effectively half the tax rate a merchant developer would be charged to build a new mixed-used property and then sell it.

“You pay double your tax, double the level for creating significant economic activity versus getting a preferential tax rate for reducing economic activity,” Peebles said. “I mean, it's an absurdity.”

Such a change would likely require the support of Congress, which Peebles and others are hoping will be more amenable to bipartisanship now that Republicans control the House of Representatives.

CBRE's Levy said he hopes the new divided government will be able to reach compromises on key issues and said the Biden administration is on the right track when it comes to targeting zoning as a key piece of housing supply policy, and he would like to see Biden remain aggressive on that front.

“There are certain things that they can do to incentivize not just the builders but local communities to reduce some of these barriers,” Levy said. “I don't think that there's a capital issue as it relates to building. I think there's a supply-of-land issue, quite candidly. And the supply is constrained very often by exclusionary zoning.”

The first two years of Biden’s term in office ended with the president signing into law a $1.7T omnibus spending package in late December. His term also began with the signing of a $1.9T stimulus package to aid the pandemic recovery. In between, he signed an infrastructure bill in November 2021 that added $550B in new spending, the $430B Inflation Reduction Act in August and the $280B CHIPS Act to spur semiconductor manufacturing that same month. 

The infrastructure and CHIPS bills in particular are expected to spur more commercial real estate development, though some industry experts have said it could take a long time before the new projects materialize. While these legislative achievements may spur growth in some sectors, NMHC’s Géno said she wants to see the federal government spend more to tackle the housing crisis. 

“We have invested well in defense spending, we have invested well in the transportation system, we have not invested as well in a basic human need, which is putting a roof over people’s heads,” Géno said. “That lack of investment … is now coming home to roost.”

Géno said the pandemic threw the issues related to housing supply into stark relief in the months leading up to Biden’s election. She views the first two years of his administration positively but said that if Biden wants to address the commercial real estate industry’s concerns, he will have to make good on promises to open up more of the United States for development.

“That would be herculean, in my opinion, and game-changing,” Géno said. “There's so many political issues wrapped up in that conversation, but we have got to do something about creating more housing.”